Credit reporting agencies maintain credit files on millions of borrowers. In most states, insurers making marketing, underwriting, and pricing decisions can choose to buy credit reports on their applicants and policyholders from the credit reporting agencies.
Your report details your credit management history as it has been reported to the credit reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you've paid your bills on time. It details how much credit you've used and whether you're seeking new sources of credit.
Because a credit report generally contains information from multiple lenders, it gives insurers a broad view of your overall credit management history. It contains numerous pieces of information that reveal many different aspects of how you manage your finances. Multiple studies have demonstrated a very strong relationship between credit management behavior and insurance losses. This makes sense: individuals who closely monitor and manage their finances also tend to be the same individuals who closely manage and maintain their property. As a result, they reduce their potential risk of loss, for example, servicing their automobile regularly, replacing worn tires before a problem occurs, replacing or repairing a damaged roof before winter storms can cause damage.
Your credit report helps insurers to assess the potential insurance risk you are likely to represent. However, it is important to note that your credit report is only one of many pieces of information that insurers use. Other types of data that insurers use include application or policyholder information, claims history, motor vehicle reports for auto insurance, and property inspection reports for homeowners insurance.
Only your insurer can tell you if they use credit data and credit-based insurance scores in their underwriting and pricing decisions, and if they do, how that information is used along with other information to make their decisions. Your insurance company ultimately determines how your credit history impacts your premium. If you would like to discuss what impact your credit history may have had on your premium, positively or negatively, please contact your insurer to discuss in further detail.