Credit-based Auto Insurance Scores: Controversial but Logical

The use of credit-based insurance scores in the United States has been in practice since the 1990s. However, it remains highly debatable until today. When it was adopted, it was intended to supplement the little consumer information available underwriters could use to make rating decisions. Fast-forward to present-day, many of the old criticisms toward it are no longer as valid as its detractors like to claim.

When buying Illinois vehicle insurance in Harvey or any nearby Chicago suburb, your FICO scores are likely to be factored into the quotes you will receive. If you feel credit-based auto insurance rating is unfair, below are the reasons why you might need to change your take on it.

They Are Not Baseless

Excellent Credit Score Report

Over the years, actuarial studies have proven the correlation between credit management and insurance risk. Sure, your credit scores predict your likelihood of credit delinquency while your insurance scores forecast the financial losses an insurer will probably absorb by taking you as a customer.

However, research revealed people handle their finances properly tend to manage other aspects of their lives more responsibly too. For instance, individuals with good credit are likely to take maintenance more seriously and drive carefully.

The predictive power of auto insurance scores stems from the fact that motorist behavior tends to be consistent. Of course, drivers are human, and they are complicated by nature. Without credit-based auto insurance scores, though, the inaccuracy of insurance premiums from motorist to motorist becomes greater.

They Are Not Unregulated

If a credit score is used as a factor in an auto insurance rejection one way or another, the federal law states that the company must inform the customer that credit information was used and should provide a copy of a credit report at no charge.

Furthermore, states that allow that use of credit scores when rating car insurance policies closely watch insurance companies. In the Prairie State, for instance, requires auto insurers to file scoring models with the department of insurance. Illinois also has a policy obliging insurers to recalculate customer credit scores after three years. In the event of an extraordinary life event, like the death of a loved one, a customer must be given a credit risk review and exception consideration.

They Can Benefit You

As mentioned, the use of credit information when rating auto insurance policies leads to premium accuracy. The U.S. Federal Trade Commission (FTC) has released a 2007 report supporting this claim. Also, the FTC concluded that credit scoring does not put minority groups at a disadvantage. 

Without auto insurance scores, the good drivers are more likely to be charged more and somewhat subsidize the coverage of the bad ones. If your credit is categorized as “poor” and you consider yourself a responsible road user, you are the exception, not the rule.

Person driving

No matter how you feel about credit-based insurance scores, what is indisputable is the apparent need to improve your FICO scores. Now that you know they can affect the cost of your auto insurance policy, you have one more reason to make good financial habits and boost your creditworthiness.


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