The fact that a strong link exists between bad credit and reported insurance claims hasn’t escaped the attention of actuaries. Bad credit will cost a borrower a bundle in insurance-premium increases and may result in being denied insurance.
About half of states have restricted the use of credit-based insurance scores in setting insurance prices. Borrowers can find out whether scores and credit reports are used in their state.
They can contact the local state insurance department. The states are still battling with this issue. It’s hard to say whether current laws will be overturned or upheld. It’s also hard to know whether more will be added.
Fair Isaac has developed an Insurance Score that is used in his process. This score is calculated by taking information from a credit report.
The formula differs from the one used to figure a typical credit score. Insurance scores range from 500 to 997. A score of 626 to 775 is average.
The Federal Trade Commission conducted a study that found that these scores are good at predicting the claims that consumers will file.
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