Insurance Scoring: What You Should Know
What is a credit-based insurance score?
Insurance companies take a number of factors into consideration when determining your insurance premiums. For most companies, one piece of the puzzle is a credit-based insurance score. A credit-based insurance score is a score calculated using information on your credit report. While they use similar information, your credit-based insurance score is not the same as your credit score. At Farm Bureau Financial Services, we obtain credit-based insurance scores from a vendor called LexisNexis.
What’s the difference between a credit-based insurance score and a credit score?
A credit score is used by lending institutions to help determine how likely you are to repay a loan on time. A bank or lending institution may factor in your income, job history and other matters that might affect your ability to repay a loan. Banks also can deny you a loan based on your credit score. We do not consider income or job history, and we won't deny you a policy based on your credit-based insurance score.
A credit-based insurance score is used to predict how likely you are to file a claim. This score is used with other factors to determine how much premium you’ll pay for your insurance.
Why do insurance companies use credit-based insurance scores?
Studies by actuaries, industry groups, and government agencies have shown that credit information is useful for predicting future accidents or insurance claims. Using credit-based insurance scoring allows us to quote a fair and appropriate rate for every client/member.
What information is used to calculate credit-based insurance scores?
Some of the factors that may affect your credit-based insurance score include:
- Outstanding credit balances (i.e. the total amount owed on all accounts listed on your credit report)
- Types of credit (e.g. bank card, store cards, auto loans, mortgage, etc.)
- Credit history (history of delinquencies or late payments)
- Applications for credit within the last 12 months
Does an insurance score inquiry affect my credit score?
Not at all. When credit information is requested on our behalf, the inquiry is considered a “soft” inquiry and will not have an impact on your credit score.
Will I still be able to apply for insurance?
Definitely! An insurance score does not determine whether or not you’re eligible for insurance. It is simply a tool we use to make sure we accurately underwrite and price the coverage you purchase.
What if special circumstances in my life have a negative effect on my credit?
If you’ve had an extraordinary life circumstance – a life-altering event like a serious illness or injury, the death of a family member, involuntary loss of work, divorce or involuntary interruption of legally-owed alimony or support payments, identity theft, active military service, or the destruction or other loss of your home that makes it uninhabitable – we follow a special process that ensures these extenuating circumstances are considered in our underwriting process. Your agent will be happy to help you with this.
What’s the best way to monitor my credit history?
Once a year you may request a free copy of your credit report from each of the three major reporting agencies. Simply call 1-877-322-8228, visit www.annualcreditreport.com or complete an Annual Credit Report Request Form and mail it to Annual Credit Report Request Service, PO Box 105281, Atlanta, GA 30348-5281.
For more information about insurance scoring, visit www.iii.org/issue-update/credit-scoring OR click below to visit the LexisNexis website: