| You hit another car; your auto insurer | | | | between good credit and relatively low |
| probably raises your premiums. But you | | | | insurance losses presupposes that the |
| may not know that your premiums can | | | | responsibility required to prudently |
| shoot up much higher if your car | | | | manage ones finances is associated with |
| insurance company is using a new breed | | | | other types of responsible and prudent |
| of credit score, even if you have a | | | | behaviors, such as proper maintenance of |
| pristine driving record. | | | | homes and autos, and safe operation of |
| Known as credit-based insurance scores, | | | | cars. |
| these numbers are computed from your | | | | Many recent studies confirm the strong |
| bill-paying and loan data collected by | | | | correlation between credit history and |
| the major credit bureaus. In recent | | | | loss in both auto and homeowners |
| years, the scores have become as | | | | insurance. Neither insurers nor the |
| important in determining your annual | | | | credit-scoring companies that discovered |
| premium as your driving record and the | | | | the relationship know what causes it. |
| neighborhood where you live. | | | | It is believed that generally people |
| Hundreds of insurers are using models | | | | with a pattern of irresponsible |
| created by ChoicePoint and Fair Isaac, | | | | financial behavior and poor credit |
| the Minneapolis company that invented | | | | history have a much greater chance of |
| credit scoring. Others have developed | | | | being in an accident or filing a claim. |
| their own systems. The scoring models | | | | But the other studies, such as the |
| stress bits of credit data that would | | | | Monaghan study, which reviewed those |
| seem to have little to do with a | | | | long-standing inferences, say that links |
| driver's tendency to make claims. There | | | | between responsible financial management |
| are no standards: Each company uses | | | | and future expected losses are |
| different models and weighs different | | | | "unsupported." |
| credit-report information. Some big | | | | Either way scoring could cost you |
| companies find scoring useful only for | | | | hundreds of extra dollars. Even a |
| new customers, not renewals, while | | | | driver with a fantastic credit score, |
| others may use it for both. | | | | who rates a low-interest mortgage, could |
| Auto insurers use this credit | | | | wind up with a less favorable insurance |
| information to produce an insurance | | | | score and thus a high premium. That's |
| score because they believe it allows | | | | because formulations for insurance |
| them to more accurately assess and price | | | | scores weigh credit data differently |
| a risk. In conjunction with other | | | | from traditional lender scores. |
| information such as years of driving | | | | There is a way to check. Under the Fair |
| experience, previous accidents, the type | | | | Credit Reporting Act of 1970, insurers |
| of car or home, and where the driver | | | | are required to notify consumers if they |
| lives and drives, credit-based insurance | | | | experience adverse action, such as |
| scores allow insurers to differentiate | | | | denial, premium increase or cancellation |
| between lower and higher insurance | | | | of coverage, due to information |
| risks. | | | | contained in their credit report. |
| These scores are not a measure of | | | | Consumers also have the right to have |
| someones financial assets, but of how | | | | errors in their credit report corrected |
| you as an individual manage your | | | | and can request that the insurance |
| financial affairs. Insurance scores are | | | | company recalculate their insurance |
| supposed to be highly accurate | | | | score and reevaluate their insurance |
| predictors of future loss in auto | | | | coverage and premium. |
| insurance. The statistical correlation | | | | |