The short answer: It can. Insurance companies use several factors to
determine your premiums, including your driving record, age, the type
of car you drive, marital status, and your address. But increasingly,
companies are using your credit history as an indicator of how likely
you are to file a claim. INSWEB has a comprehensive breakdown of what insurance companies are looking for.
Called
an insurance risk score, this controversial number is calculated using
a special formula similar to a credit score but developed specifically
for insurers. This formula is currently unavailable to consumers;
however, many states are currently considering legislation to regulate
the use of this score. In fact, Maryland and Washington have passed
laws that restrict the use of credit information by insurance companies.
A
few things have been made public about your insurance risk score
recently. Five main financial factors are evaluated to calculate your
insurance risk score:
1. Your payment history: Your record of paying credit bills in the
past, number of adverse public records (i.e. bankruptcy, collections,
liens), and the amount of delinquencies on your credit record account
for about 35% of your insurance risk score. This is the largest factor
in your insurance rating.
2.
Amount of debt you owe: The number of accounts you have open, the types
of accounts, and the amount you have charged all combine to count as
30% of your risk score.
3. Length of credit history: The amount
of time that you've had credit and the specific length of time that you
have had certain accounts make up 15% of your risk analysis.
4.
New credit: 10% of your risk analysis is calculated based on your
recent credit activity. Your number of new accounts, recent inquiries,
and efforts to re-establish troubled credit are grouped into this
category.
5. Types of credit in use: The number and activity of
credit accounts including credit cards, retail store accounts, and
mortgages count for another 10% of your risk evaluation.
Although
consumers can't access their own insurance risk score, simply knowing
that your credit history is used by insurers can help you get a better
deal. If you have excellent credit, you may want to use it to your
advantage and shop around for the best insurance rates possible. If you
have troubled credit, you may want to stay with your current insurer
until your finances improve.
By understanding some of the
credit factors that go into your insurance assessment, you are
empowered to improve your insurance risk score. Take charge of your
credit and get the insurance rate you deserve.
You can look up your credit report at FreeCreditReport.com