Your Credit Score and How It Relates To Insurance (2)

Insurance companies may look at credit history and other public information without the permission of an applicant or insured. Most insurance agents don’t even know what a clients credit score is. Instead, an agent will only know an insurance score qualifies someone for a certain rate level or policy packages within a specific insurance company. Even if someone were to know their insurance credit score, it wouldn’t mean anything to anyone outside of the insurance company and their agents.

Insurance companies use consumer credit information differently than financing or lending businesses do. Most consumers are aware of consumer credit scores and often assume an insurance credit score is the same number. Someone may have a consumer credit score of 780 but with one insurance company, the score may simply be “Premium Package,” and for another insurance company “Rating Tier #5.”

Consumer credit scores and Insurance credit scores are apples and oranges. The methods of deciding what an individuals insurance score is will be determined by the way a particular insurance company has decided to evaluate credit history as well as other information that may be found in public records. There are some common factors between the consumer credit score most people understand and the insurance scores used by companies to establish qualifications for coverage and set premiums. Both use your credit history report and both require consumers to be informed when there is any adverse action based on credit history.

Credit scores vary from company to company, so a customer and an agent for that matter, may never know how credit history actually affects insurance policies offered and at what premium those policies may be offered. Insurance agent and companies are required to inform customers if they take an “adverse action” because of credit information. Fair Credit Reporting Acts, (FCRA) defines “adverse action” to include denying or canceling coverage, increasing premiums, or changing the terms, coverage or amount of coverage in a way that harms the consumer.

If an insurance company takes an adverse action due to credit history, they must provide the name of the national credit bureau that supplied the information. When an adverse action is taken based on credit, consumers are entitled to a free copy of their credit report from the credit bureau that supplied the credit information. Federal law says consumers have a right to a free copy of their credit report if they’ve been denied credit or insurance, if they are on welfare, unemployed, or the victim of identity theft.

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