Recently, the Consumer Reports for Auto Insurance revealed that pricing coverage poses a huge inequity for drivers. So how big of an inequity are we talking about? Take for example a person with a DUI or DWI arrest. Did you know that they can actually have a lower premium than a person with a perfect driving record who has a poor credit score?

Unfortunately, setting your insurance rate according to your credit score is actually legal in 47 states. In fact, FICO, a major company that generates credit-based insurance scores, reveals that approximately 95% of auto insurers use credit-based insurance scores in states where it is legally allowed in underwriting or a risk classification factor.

So what kind of credit scores are insurance companies using? Although it’s not a regular credit score that looks at several different factors to determine your likelihood of repaying a loan or a line of credit, a credit-based insurance score looks at different factors to determine how you are likely to manage your risk exposure. Many insurers believe that by using your credit information, they can set a better premium based on your credit score than on your driving record.

Below are a few commonly asked questions that consumers have regarding their credit-based insurance score. The information we gathered was taken directly from the National Association of Insurance Commissioners website.

What kind of information goes in to my credit-based insurance scores?

FICO looks at five general areas it believes will best determine how you manage risk. This is the breakdown of what it considers and how much the information generally weighs in figuring your credit-based insurance score:

  • Payment History (40%) — How well you have made payments on your outstanding debt in the past
  • Outstanding Debt (30%) — How much debt you currently have
  • Credit History Length (15%) — How long you have had a line of credit
  • Pursuit of New Credit (10%) — If you have applied for new lines of credit recently
  • Credit Mix (5%) — The types of credit you have (credit card, mortgage, auto loans, etc.)

How can an insurance company use your credit-based insurance scores?

An insurance company can only use your credit-based insurance score as one factor in its underwriting process. It will be considered with several other factors that vary by insurance type. For example, with auto insurance other factors could be your zip code; the age of the operators; the make, model and age of the car; and even the miles you drive annually. You can ask your insurance company if a credit-based insurance score was used to underwrite and rate your policy and which risk category you were placed in after you receive a quote.

Where can I check my credit report and get more information about improving my credit-based insurance score?

The Fair and Accurate Credit Transaction Act of 2003 (FACT Act) allows consumers to obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). You can go to to check all three reports annually without paying a fee.

To find out if your state legally allows your credit score to be a factor in your premium, ask your insurance company if a credit-based insurance score was used to underwrite and rate your policy.

Furthermore, let this be a reminder that you should always be using Rule #1 (hyperlink to rules page) when it comes to choosing your car insurer. For those of you who are new to the Saving Thousands radio show, Rule # 1 states that you should “always shop around.” Whether it’s yearly or every three years, don’t fall into the financial zombie trap of just going through the motions. You could be wasting hundreds of dollars.


Learn more about credit based insurance score here.