Do Insurance Carriers Charge Extra Money for Bad Credit?

Published on May 29, 2014 10:09 am

Most insurance companies look at your credit report, but it’s only one of many factors used to determine your premium. Furthermore, the score they look at isn’t really your credit score.

According to information provided by the Federal Trade Commission, some insurance companies look at customer credit scores to determine whether to offer them coverage and, if so, how much to charge in premiums. Additionally, the Federal Trade Commission suggests that bad credit can mean higher premiums.

Do Insurance Companies Consider Credit Scores?

A credit score measures how likely you are to pay your bills on time, based on the information in your report. Many insurers instead use an “insurance score,” which measures the risk that you’ll file a claim – that is, seek payment from the insurance company for such things as auto accidents and damage to your property. Insurance scores come from the information in the same credit report, but that information is weighted differently than in a credit score.

Paying for Repairs

Your credit information provides insights on the overall condition of your finances, which helps insurers in most states decide to issue or renew an insurance policy, or how much premium to charge for insurance. If you’re already using nearly all of your available credit, for example, you may not have the resources to deal with unexpected expenses such as a fender-bender accident or minor storm damage.

Responsibility Issues

Insurance scores are also based on the idea that how you manage your finances reflects on your general level of responsibility. If you’re not paying your bills on time or not managing your credit usage wisely, insurers think you may be less likely to be keeping up with basic car or home maintenance and that can lead to more insurance claims, or more expensive claims. A poorly maintained home, for example, may be more likely to suffer serious damage in a storm.

Legal Questions

According to the National Association of Insurance Commissioners, insurance is regulated at the state level, so state governments set the rules for how insurance companies can use your credit report in making decisions on coverage and premiums.

In general, insurers can’t rely solely on credit information. Some states allow credit-based scoring only for property insurance – such as home or auto coverage – and not for health or life insurance. Check with your state’s insurance commission for the rules that may apply. If an insurer denies coverage, you should contact the insurer for more specific information. The insurer should tell you which credit bureau provided the credit information it used, if any, and how you can get in touch with that bureau.

About the Author
Cam Merritt has been a professional writer and editor since 1992, specializing in articles about personal finance and law. He has contributed to USA Today and the Better Homes and Gardens family of magazines and websites. Merritt has a Bachelor of Arts in journalism from Drake University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.

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