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