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Credit Scores and Auto Insurance

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What is an insurance score?

An insurance score is a number calculated by a statistical model using information contained in a credit report. Insurance scores have been developed to help predict the likelihood of having an accident or filing a claim.

What is the difference between an insurance score and a credit score and how are they calculated?

While insurance scores predict insurance losses, credit scores predict credit delinquency. Both are calculated from information in a credit report, such as outstanding debt, bankruptcies, length of credit history, collections, new applications for credit, number of credit accounts in use, and timeliness of debt repayment. Insurers or scoring agencies then calculate the insurance or credit score by taking the information in the credit report and assigning positive weights to the favorable information and negative weights to the unfavorable information. Information such as income, ethnic group, age, gender, disability, religion, address, marital status, and nationality are not considered when calculating an insurance score.

Why does Liberty Mutual use insurance scores?

Liberty Mutual, as well as many other insurance companies, uses insurance scores because they provide an objective way to evaluate the risk of an applicant. Independent studies and Liberty Mutual experience show that insurance scores are a very good predictor of future losses. When insurance scores are combined with traditional risk evaluation factors (such as prior claims history, years of driving experience and driving record) insurance companies can more accurately determine the risk an applicant presents. By using insurance scores combined with other factors, policies can be more accurately priced. Individuals who are more likely to have a claim will pay more for insurance and individuals who are less likely to have a claim will pay less.

What type of credit information is generally associated with a favorable insurance score?

  • Lengthy, established credit history
  • Absence of collections
  • No late payments
  • Low credit balances relative to limits available
  • Few recently opened credit accounts (new accounts opened only as needed)

How can I learn more about my credit information and how to manage it?

A good credit rating must be built over time. There are no "quick fixes." The Federal Trade Commission website provides articles about managing personal credit history and scores.
Federal Trade Commission website

I have an excellent credit rating; does this mean I qualify for the best insurance premium?

That depends. Since insurance scores measure items related to insurance losses and credit scores measure creditworthiness, these scores may be very different. Items on a credit report considered by an insurance company may not be ones considered by a lender. Likewise, there may be items on a credit report used by a lender that are not relevant to an insurer. Additionally, insurance companies consider a number of other factors when determining your automobile premium such as driving record, prior loss history, and vehicle type. For your homeowner premium, insurers may consider prior loss history, construction type, distance to fire stations and fire hydrants, and presence of protective devices such as smoke detectors, theft alarms, and deadbolt locks. State laws and regulations also vary, so the factors insurers may use to calculate premium or determine eligibility may differ by state.

Does the use of credit affect my credit rating?

There is no affect on an individual's credit rating when Liberty Mutual makes an inquiry into their credit history. No banks or other lending institutions will be able see the credit record inquiry made by Liberty Mutual. The only record of the inquiry by Liberty Mutual will be on the copy obtained by the consumer, if he or she chooses to receive a copy of their credit report.

How do I know what information is in my credit report?

Under the federal Fair Credit Reporting Act you are entitled to receive a free copy of your credit report once during any 12-month period. Otherwise, the credit bureau may charge a fee for more frequent requests. It is a good idea for you to annually check your credit information on file with the three major credit bureaus to verify the report's accuracy. If an error is found, you should ask the credit bureau how to correct the information.

How can I receive a copy of my credit report?

You can receive a copy of your credit report by contacting the following agencies.

Equifax 800-685-1111
Experian 888-397-3742
Trans Union 800-888-4213

Liberty Mutual uses credit information where permissible by state law and regulation, and its use may vary depending on the state's laws and regulations.