Auto Insurance and Credit Score

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RMO87
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Auto Insurance and Credit Score

Post by RMO87 » Sun Jun 28, 2020 2:45 pm

I've heard that your credit score impacts the rate you pay for auto insurance. Our credit is good (750-760), but I was just curious if anyone knew how it works.

Do the insurance companies check your credit every six months (at renewal) and then potentially adjust your rate if your credit score has significantly increased/decreased?

Are there known pre-determined thresholds (e.g., 650-700 score gets charged $X; 701-720 score gets charged $Y)? Are the best rates maxed out after a given score--like qualifying for the best mortgage rates with a score above 740?

Thanks in advance!
Ryan

contimprov
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Re: Auto Insurance and Credit Score

Post by contimprov » Sun Jun 28, 2020 3:12 pm

Yes, credit score does impact the insurance rates.

My insurance company uses the FICO Score 9.0 that maxes out at 9.0. This is the max one can have and obviously the discount maxes out at this score level.

I had to make the call when my score hit 9 and they applied the discount to my account. Not sure if they would have done have I given them enough time.

benway
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Re: Auto Insurance and Credit Score

Post by benway » Sun Jun 28, 2020 3:16 pm

This is perplexing to me because I can't remember ever being asked for my Social Security number or authorization for a credit score check when getting quotes for auto insurance. In fact, just last week I received two quotes without my credit score being checked to the best of my knowledge.

Do insurance companies have a way to check this without one's SSN?

02nz
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Re: Auto Insurance and Credit Score

Post by 02nz » Sun Jun 28, 2020 3:18 pm

contimprov wrote:
Sun Jun 28, 2020 3:12 pm
Yes, credit score does impact the insurance rates.

My insurance company uses the FICO Score 9.0 that maxes out at 9.0. This is the max one can have and obviously the discount maxes out at this score level.

I had to make the call when my score hit 9 and they applied the discount to my account. Not sure if they would have done have I given them enough time.
Pretty sure FICO Score 9 maxes out at either 850 or 900, not 9.0! :happy

contimprov
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Re: Auto Insurance and Credit Score

Post by contimprov » Sun Jun 28, 2020 3:57 pm

02nz wrote:
Sun Jun 28, 2020 3:18 pm
contimprov wrote:
Sun Jun 28, 2020 3:12 pm
Yes, credit score does impact the insurance rates.

My insurance company uses the FICO Score 9.0 that maxes out at 9.0. This is the max one can have and obviously the discount maxes out at this score level.

I had to make the call when my score hit 9 and they applied the discount to my account. Not sure if they would have done have I given them enough time.
Pretty sure FICO Score 9 maxes out at either 850 or 900, not 9.0! :happy
This is a different score than your credit score and yes it maxes out at 9. :D

https://www.fico.com/en/newsroom/fico-s ... myfico-com

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grabiner
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Re: Auto Insurance and Credit Score

Post by grabiner » Mon Jun 29, 2020 10:49 pm

You may need to ask insurers to rescore your credit; it isn't necessarily done automatically.

This affected me when I lived in NJ. I didn't get the best rates when I moved to NJ in 2010, because of only two open accounts, and two recent inquiries (not actually credit inquiries; they were from the landlord and electric company). In 2012, with three open accounts, the newest a year and a half old, and no recent inquiries, I had a quoted rate with no adverse action notice from the credit bureau, so I asked the insurer to re-score and got a much lower rate.

Note that insurance scores are different from credit scores, with different weights on different factors. The published models are much more sensitive to inquiries, and I have seen a similar phenomenon on Credit Karma when it used to give an insurance score.
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jeffyscott
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Re: Auto Insurance and Credit Score

Post by jeffyscott » Tue Jun 30, 2020 8:58 am

grabiner wrote:
Mon Jun 29, 2020 10:49 pm
Note that insurance scores are different from credit scores, with different weights on different factors. The published models are much more sensitive to inquiries, and I have seen a similar phenomenon on Credit Karma when it used to give an insurance score.
In addition, different companies may interpret things differently. About 8 years ago, we had a big increase and insurance company blamed it on the number of new accounts (which we'd opened for bonuses). Shopped around and got a decrease, instead of an increase.

Our FICO scores have always been in high 700s or above, so that score being high did not prevent at least one company from using credit history against us.
Time is your friend; impulse is your enemy. - John C. Bogle

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grabiner
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Re: Auto Insurance and Credit Score

Post by grabiner » Tue Jun 30, 2020 10:10 am

jeffyscott wrote:
Tue Jun 30, 2020 8:58 am
grabiner wrote:
Mon Jun 29, 2020 10:49 pm
Note that insurance scores are different from credit scores, with different weights on different factors. The published models are much more sensitive to inquiries, and I have seen a similar phenomenon on Credit Karma when it used to give an insurance score.
In addition, different companies may interpret things differently. About 8 years ago, we had a big increase and insurance company blamed it on the number of new accounts (which we'd opened for bonuses). Shopped around and got a decrease, instead of an increase.
This isn't surprising since there are many different models. The same thing can happen even with conventional credit scores. Credit Karma used to give both a Trans Union score and a VantageScore 2.0 based on the same information. When I opened my mortgage, my Trans Union score dropped a few points, while my VantageScore jumped to a much higher level than it had even been, probably because I moved to a different category by having a mortgage instead of just three credit cards.
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SimonJester
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Re: Auto Insurance and Credit Score

Post by SimonJester » Tue Jun 30, 2020 1:06 pm

benway wrote:
Sun Jun 28, 2020 3:16 pm
This is perplexing to me because I can't remember ever being asked for my Social Security number or authorization for a credit score check when getting quotes for auto insurance. In fact, just last week I received two quotes without my credit score being checked to the best of my knowledge.

Do insurance companies have a way to check this without one's SSN?
Social security number is not needed to pull a report from the credit bureaus or report credit to the bureaus. They can use your name, address and DOB (which they probably have from your drivers license info). Any company can do this with just Name DOB and address...

Im 100% sure somewhere in your policy paperwork there is a section about agreeing to the insurer pulling a credit report.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

Vanguard Fan 1367
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Re: Auto Insurance and Credit Score

Post by Vanguard Fan 1367 » Tue Jun 30, 2020 2:38 pm

My insurance company said that I didn't qualify for their best auto insurance rate because the credit bureau said that I hadn't lived in my current location for 5 years. When I pulled the report it listed an old address as my current address. I have only lived in my current house for 4 plus years but the credit bureau had me as not living here at all. So I need to take the time to try to unravel that mess and hopefully when I have lived here for 5 years the credit bureau will know that and I can get the best rate.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

RudyS
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Re: Auto Insurance and Credit Score

Post by RudyS » Tue Jun 30, 2020 5:03 pm

It's state dependent. I used to live in Michigan where this was a consideration. Now, in Massachusetts, insurance companies are forbidden by law to consider credit scores in setting rates.

JBTX
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Re: Auto Insurance and Credit Score

Post by JBTX » Tue Jun 30, 2020 5:26 pm

Yes your credit can affect auto insurance. Depends on company. I know progressive it does, because I talked to theirccredit dept a couple of times after my premium went up materially but no accident, tickets, etc and was long term customer.

They don't go directly on credit score. They tend to have their own proprietary formulations. The criteria for evaluating credit may be similar, but how they are weighted is different. For instance, if you have a couple of hard refi inquiries on your credit report, their information says you are a higher risk - whether that makes any sense or not (home refis = accidents??). My semi annual premium went up over $100 because my credit category dropped from their best grouping to the third best (which was still high, but lower). The items that got me were having 2 recent refi pulls (same company) and my average age of credit dropped from just over 10 years to just under 10. This was the information directly related to me by their credit dept. Those items may have only changed a traditional credit score 20-30 pts, but had a much bigger impact on progressives scoring.

After much discussion they moved me back to tier 1, but 2-3 years later it happened again. Finally I went to geico out of frustration.

They reviewed every 2 or 3 years if I recall. State of TX.

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grabiner
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Re: Auto Insurance and Credit Score

Post by grabiner » Tue Jun 30, 2020 11:17 pm

JBTX wrote:
Tue Jun 30, 2020 5:26 pm
They don't go directly on credit score. They tend to have their own proprietary formulations. The criteria for evaluating credit may be similar, but how they are weighted is different. For instance, if you have a couple of hard refi inquiries on your credit report, their information says you are a higher risk - whether that makes any sense or not (home refis = accidents??).
The issue here is that the model doesn't distinguish different types of inquiries. When I moved to NJ, I paid a higher rate because of two recent inquiries which also weren't attempts to obtain credit; they were from the landlord and electric company, which were necessary inquiries for my move. You had the same problem; the model doesn't distinguish refinancing an existing loan (which reduces your financial obligations) from taking out a new loan (which increases them).
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peetsperk
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Re: Auto Insurance and Credit Score

Post by peetsperk » Wed Jul 01, 2020 12:44 am

Call me a skeptic. Let me be clear. I’m not saying there aren’t insurance companies that use credit scores. However, I am saying I believe the prevalence and impact on rates are often overstated. I offer the following food for thought.

First, after the Equifax breach, there are numerous estimates that 1 in 5 Americans froze their credit. It’s safe to assume those numbers have only increased following many, many other high profile credit breaches. Should we assume insurance companies are charging 1 in 4 U.S. consumers a big premium because they can’t regularly pull their credit score? Or, are they asking these millions and millions and millions of customers to unfreeze their credit every year so they can update their premium? Sorry, I find either situation hard to believe.

Second is our own experience. We became debt-free in 2014. We have no credit cards, no mortgage, no other loans, no lines of credit, or anything else. We also froze our credit in 2016. We have never been asked by our insurer for permission to check our credit score. Not once! Our 6-month premium for two cars that includes collision coverage, comprehensive coverage and liability is $392.29. If we’re paying a higher premium for not having a credit score, it must not be much.

khram
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Re: Auto Insurance and Credit Score

Post by khram » Wed Jul 01, 2020 12:54 am

I've heard this before too. Does anyone have hard examples? E.g., a jump in credit from 650 to 700 or 700 to 750 reduced bill by $50/month? Obviously there are other factors that could change over time too, and they may be looking at the report itself for debt-related things, not just the number, so it'd just be correlation.

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Re: Auto Insurance and Credit Score

Post by RetiredAL » Wed Jul 01, 2020 1:47 am

Vanguard Fan 1367 wrote:
Tue Jun 30, 2020 2:38 pm
My insurance company said that I didn't qualify for their best auto insurance rate because the credit bureau said that I hadn't lived in my current location for 5 years. When I pulled the report it listed an old address as my current address. I have only lived in my current house for 4 plus years but the credit bureau had me as not living here at all. So I need to take the time to try to unravel that mess and hopefully when I have lived here for 5 years the credit bureau will know that and I can get the best rate.
Equifax can't figure me out either. Wife and I have our own home. I'm the also trustee of my elderly Dad's trust, so my name is associated with his home ( different town) , a mountain vacation home, and a until recently a lot out of state. Add to that, I'm joint on his 3 credit cards that are to his address. Whenever I try to get my credit report from Equifax, I get bounced, usually by the address questions. The other 2 have no trouble validating me, so those are what I use. Credit score is not used in this state for insurance.

The problem with the credit bureaus is that there is no financial incentive for them to have accurate data. They are paid by the inquiry and they don't give a damn if it's a correct positive report or an erroneous negative report.

IMO
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Re: Auto Insurance and Credit Score

Post by IMO » Wed Jul 01, 2020 2:07 am

I can't remember the name (someone help out here, it's not the CLUE report), but there is some OTHER type of credit score that is used to determine insurance rates (at least for homeowner's insurance). This other score was noted on my last USAA insurance bill/explanation as something that is utilized to influence my insurance rate. I looked it up because I never heard of it, per reviews it's a ridiculous system that finds some way of providing negative credit ratings for people who might have otherwise stellar normal credit scores and is not a rating related to prior homeowner's claims. Again, it might not be for auto insurance? but it definitely showed up on a letter from USAA (with a couple of negative factors) regarding homeowner's insurance despite the fact that we have excellent credit scores.

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jeffyscott
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Re: Auto Insurance and Credit Score

Post by jeffyscott » Wed Jul 01, 2020 6:22 am

Here's what I was told by our insurance agent, when I had asked about rate change, copied from a 2012 email reply:
Thank you for your email. I Have reviewed your homeowners policy and found a change in the credit based insurance score. This score is a mathematical formula insurance companies get from trans union.
We get a score from 1 to 60. 1 being the best and 60 the worst. Your score went from 1 to 6 which changed the discount you get.


There was a 30% increase at that time. As noted before, we switched and ended up with a decrease, instead.
Time is your friend; impulse is your enemy. - John C. Bogle

talzara
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Re: Auto Insurance and Credit Score

Post by talzara » Wed Jul 01, 2020 10:11 am

peetsperk wrote:
Wed Jul 01, 2020 12:44 am
Call me a skeptic. Let me be clear. I’m not saying there aren’t insurance companies that use credit scores. However, I am saying I believe the prevalence and impact on rates are often overstated.
Credit history is one of the best predictors of automobile claims risk. It's a better predictor than points on your license, number of moving violations, or even claims history.

It's one of the most important rate factors, alongside age, sex, and marital status. Drivers with the worst credit records pay about three times as much as drivers with the best credit records.
peetsperk wrote:
Wed Jul 01, 2020 12:44 am
First, after the Equifax breach, there are numerous estimates that 1 in 5 Americans froze their credit. It’s safe to assume those numbers have only increased following many, many other high profile credit breaches. Should we assume insurance companies are charging 1 in 4 U.S. consumers a big premium because they can’t regularly pull their credit score? Or, are they asking these millions and millions and millions of customers to unfreeze their credit every year so they can update their premium? Sorry, I find either situation hard to believe.
Both situations are incorrect. Insurance companies can pull your credit history even when you have a credit freeze in place:
Credit freezes are a great tool for blocking lenders and credit card issuers from accessing your report without your knowledge.

But freezes don't shut out inquiries by insurers.

Nearly every state, including Ohio, created an exception in its freeze law that allows insurers access to credit reports for "underwriting," or sizing up potential consumers for insurance offers.

https://www.cleveland.com/consumeraffai ... rs_ou.html

talzara
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Re: Auto Insurance and Credit Score

Post by talzara » Wed Jul 01, 2020 10:26 am

IMO wrote:
Wed Jul 01, 2020 2:07 am
I can't remember the name (someone help out here, it's not the CLUE report), but there is some OTHER type of credit score that is used to determine insurance rates (at least for homeowner's insurance). This other score was noted on my last USAA insurance bill/explanation as something that is utilized to influence my insurance rate. I looked it up because I never heard of it, per reviews it's a ridiculous system that finds some way of providing negative credit ratings for people who might have otherwise stellar normal credit scores and is not a rating related to prior homeowner's claims.
It's called a credit-based insurance score. Several posts on this thread have already mentioned it without using the term. (Edit: One person called it an "insurance score," which is the short name.)

The insurance scoring model is trained on insurance claims instead of defaults and late payments. The factors have different weights. For example, credit inquiries have a larger impact on your insurance score than the number of late payments. It's the other way around for credit scores.

Credit-based insurance scores are highly correlated with credit scores. You might go from the top decile to the second decile, but you won't go from the top decile to the bottom decile.

Credit history is one of the best predictors of insurance claims. People with the worst credit records will pay about three times as much for auto insurance as people with the best credit records. They only pay about twice as much for homeowners insurance, but this hides a lot of variation in the different perils.

Credit history has no effect on hurricane insurance premiums, because good credit will not save you from a hurricane. However, credit history has a very large effect on fire insurance premiums. People with the worst credit records will pay 10 times as much for fire insurance as people with the best credit records. People with good credit usually will not burn down their own house for the insurance money.
Last edited by talzara on Wed Jul 01, 2020 10:37 am, edited 1 time in total.

talzara
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Re: Auto Insurance and Credit Score

Post by talzara » Wed Jul 01, 2020 10:36 am

RetiredAL wrote:
Wed Jul 01, 2020 1:47 am
The problem with the credit bureaus is that there is no financial incentive for them to have accurate data. They are paid by the inquiry and they don't give a damn if it's a correct positive report or an erroneous negative report.
They have a financial incentive. If the data is bad, then insurance scores will not work as well to predict claims risk. The product will be less valuable to the insurance companies, and they'll demand a lower price.

However, the financial incentive is very small. If one bureau had half the error rate of another bureau, it's not going to double its market share.

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peetsperk
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Re: Auto Insurance and Credit Score

Post by peetsperk » Wed Jul 01, 2020 11:04 am

talzara wrote:
Wed Jul 01, 2020 10:11 am
peetsperk wrote:
Wed Jul 01, 2020 12:44 am
Call me a skeptic. Let me be clear. I’m not saying there aren’t insurance companies that use credit scores. However, I am saying I believe the prevalence and impact on rates are often overstated.
Credit history is one of the best predictors of automobile claims risk. It's a better predictor than points on your license, number of moving violations, or even claims history.

It's one of the most important rate factors, alongside age, sex, and marital status. Drivers with the worst credit records pay about three times as much as drivers with the best credit records.
peetsperk wrote:
Wed Jul 01, 2020 12:44 am
First, after the Equifax breach, there are numerous estimates that 1 in 5 Americans froze their credit. It’s safe to assume those numbers have only increased following many, many other high profile credit breaches. Should we assume insurance companies are charging 1 in 4 U.S. consumers a big premium because they can’t regularly pull their credit score? Or, are they asking these millions and millions and millions of customers to unfreeze their credit every year so they can update their premium? Sorry, I find either situation hard to believe.
Both situations are incorrect. Insurance companies can pull your credit history even when you have a credit freeze in place:
Credit freezes are a great tool for blocking lenders and credit card issuers from accessing your report without your knowledge.

But freezes don't shut out inquiries by insurers.

Nearly every state, including Ohio, created an exception in its freeze law that allows insurers access to credit reports for "underwriting," or sizing up potential consumers for insurance offers.

https://www.cleveland.com/consumeraffai ... rs_ou.html
Thanks for the follow-up talzara. Can you provide a source for this statement - "Nearly every state, including Ohio, created an exception in its freeze law that allows insurers access to credit reports for "underwriting," or sizing up potential consumers for insurance offers." ?

talzara
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Re: Auto Insurance and Credit Score

Post by talzara » Wed Jul 01, 2020 11:07 am

peetsperk wrote:
Wed Jul 01, 2020 11:04 am
talzara wrote:
Wed Jul 01, 2020 10:11 am
Credit freezes are a great tool for blocking lenders and credit card issuers from accessing your report without your knowledge.

But freezes don't shut out inquiries by insurers.

Nearly every state, including Ohio, created an exception in its freeze law that allows insurers access to credit reports for "underwriting," or sizing up potential consumers for insurance offers.

https://www.cleveland.com/consumeraffai ... rs_ou.html
Thanks for the follow-up talzara. Can you provide a source for this statement - "Nearly every state, including Ohio, created an exception in its freeze law that allows insurers access to credit reports for "underwriting," or sizing up potential consumers for insurance offers." ?
The source is right under the sentence you quoted.

JBTX
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Re: Auto Insurance and Credit Score

Post by JBTX » Wed Jul 01, 2020 11:56 am

grabiner wrote:
Tue Jun 30, 2020 11:17 pm
JBTX wrote:
Tue Jun 30, 2020 5:26 pm
They don't go directly on credit score. They tend to have their own proprietary formulations. The criteria for evaluating credit may be similar, but how they are weighted is different. For instance, if you have a couple of hard refi inquiries on your credit report, their information says you are a higher risk - whether that makes any sense or not (home refis = accidents??).
The issue here is that the model doesn't distinguish different types of inquiries. When I moved to NJ, I paid a higher rate because of two recent inquiries which also weren't attempts to obtain credit; they were from the landlord and electric company, which were necessary inquiries for my move. You had the same problem; the model doesn't distinguish refinancing an existing loan (which reduces your financial obligations) from taking out a new loan (which increases them).
Makes sense. In my case it was because chase had bought out WAMU in the middle of a refi that ended up taking months and they ended up pulling credit again. Ultimately I wrote the credit agencies and or chase to have the duplicate removed but obviously that took time.

I was just baffled how something that has a relatively negligible impact on your credit score had such a big impact on premiums. I hadn't realized some insurance companies use credit history to determine rates, even for existing customers, and also while they use the same information and criteria they may use it dramatically differently.

I tend to chase credit card and bank bonuses, so I pay more attention these days. The amount I get doing far surpasses any theoretical impact on insurance premiums, but when I see some here say that doing X Y or Z will have marginal impact on credit score, I bristle a bit because while that is true, not everybody evaluates your credit using the common scoring approaches.

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