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How your credit affects your insurance

There are plenty of factors that can change your insurance rates—both for better and for worse. Your age, your occupation and your location can all play a role in determining how much you pay for insurance, but did you know your credit score is also a key component? 

Insurance companies want to know what kind of a risk you carry when you sign up for a policy. Your credit history is one of the first things that an insurance company can refer to when estimating your profile as a potential client. Ultimately, insurance companies want to know the likelihood that you will file a claim and make payments on time. Your credit history provides a glimpse into these factors and what kind of consumer you have been. 

Insurance companies sometimes isolate bits of information in your credit score and combine that with your insurance history to come up with what is called a credit-based insurance score. According to FICO (Fair Isaac Corporation), about 95 percent of auto insurers and 85 percent of homeowners insurers use credit-based insurance scores to help determine rates (except in California, Hawaii and Massachusetts). There is no personal information included in your credit-based insurance score, so factors such as gender, age, employment history and income are not considered. 

If your credit score or credit-based insurance score is high, you would be considered a low risk and your premium payments would be lower. A lower score on those credit reports would mean a higher risk, and your insurance premiums could spike. 

The FICO credit score is the most commonly used and publicly available type of credit score. FICO scores range from 300 to 850. Each of the three main credit bureaus--Equifax, Experian and TransUnion—calculates a FICO score for every consumer, so you will have three FICO scores to your name. These three scores can differ slightly, depending on what information the credit bureau has on file for you. 

There are five main elements that affect your FICO credit score, and they are all weighted differently:

  • Payment history (35 percent)
  • Amounts owed (30 percent)
  • Length of credit history (15 percent)
  • Types of credit used (10 percent)
  • New credit (10 percent)

Once these five factors of your credit score are calculated, you are assigned a number that both you and your insurance provider can access free of charge. It is recommended that you check your credit score at least once a year, but more often if you are making big purchases or going through major life changes. 


First Tech Insurance Services is a wholly-owned subsidiary of First Tech Federal Credit Union.

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