If you’re applying for a vehicle, homeowner’s or renter’s insurance policy, you may be surprised to learn some of the many factors insurance company underwriters consider when rating you for a policy. For auto insurance, you probably already know that they’re going to consider things like your age, gender, driving history, age and model of your car, approximate miles driven annually and who will be driving the car. Contrary to popular belief, your car’s color is not a factor considered by your insurer’s underwriter, but your zip code and credit history definitely factor in. Insurers will also typically consider where your vehicle is parked most of the time.
When applying for a homeowners insurance policy, the information you supply on your policy application will be considered along with data gathered by the inspector during a home inspection. Details relating to the home such as age, condition, replacement value and perceived liability risks are important factors considered during the property’s underwriting process. Details relating to some of your personal information are also taken into account. These details may include:
- Your insurance claims history, which may be an important indicator of future potential claims. If you’ve filed insurance claims in the past, regardless of how large or small, you’ll represent an increased risk of future claims filings.
- Your credit history and credit rating. Poor credit scores may be indicative of the risk that you may possibly either miss premium payments or discontinue making payments altogether. As compensation for this, if you have poor credit you can expect to face higher premium rates than those with a good credit history.
Credit-Based Insurance Scores and Credit Scores
While insurance scores and credit scores are not the same, both are derived from the details of your credit history reflected in your credit report. A credit score is meant to predict or reflect credit delinquency. An insurance score is used to predict future insurance claims or losses. An insurance score doesn’t measure how much money you earn but, rather, how you manage that money.
Credit-based insurance scores, first introduced by Fair Isaac Corporation (FICO) in the 1990s, is now used by approximately 85% of insurers writing homeowners insurance and 95% of those writing vehicle insurance.
Credit-based insurance scores are used when underwriting homeowners or auto insurance coverage as one single factor to be considered among various other factors used in the underwriting process.