While the vast majority of insurance companies use credit-based insurance scores to help determine the price of insurance, it is banned in the states of Massachusetts, Michigan, Hawaii, and California. Some states only allow it as a factor for property insurance like auto and homeowners insurance. Other states allow it to be used with any type of insurance.1
Generally, an insurance company will use a credit-based insurance score as just one factor in its underwriting process. Other factors may be considered, depending on the type of insurance. For example, with auto insurance, other factors could include your zip code, the age of the driver, the make, model and age of the car, and the number of miles you drive annually.
The use of credit scores to determine insurance rates is rooted in research that has shown individuals with lower credit scores tend to file more claims.2
You can ask your insurance company if a credit-based insurance score was used to underwrite and rate your policy, and in which risk category you were placed.
If you want to improve your credit-based insurance score, you should consider taking the same steps you would to improve your credit rating: make timely debt payments, clear up past disputes, and keep credit card balances low.
1. Forbes, November 23, 2023
2. ValuePenguin.com, May 30, 2023
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