Auto Insurance vs Credit Scores


OJORF-00012938-001This is a common topic talked about by many credit card holders with auto insurance. The question, “does my credit score affect my auto insurance,” seemed to be popularly heard around. And some will answer the affirmative. But then other people could not see any relation between driving and the debts owed. Some people support this view as there isn’t any actual reason or explanation that will put these two things together logically.

Insurance companies have found out that the FICO scores, credit card scores developed by Fair Isaac Corporation (FICO), are basically reliable sources for their customers’ ability-to-pay status. Insurance agencies checks on how their customers pay their credit bills, which may be assumed to be the same with how these customers, pay their auto insurance premiums. A high credit score means the holder is a good payer and a reliable customer. Auto insurance companies may allow discounts or lower premiums to this type of drivers. “A consumer with bad credit is going to pay 20 to 50 percent more in auto insurance premiums than a person who has good credit,” Clarence Smith, former assistant vice-president at Conning & Co., said.

Sandra Lapham of Insurance Score, claims an opposing point, where there are no “significant relationship” of insurance and credit score. “There really has been no serious study on the issue. The data and the researches came from insurers and the vendors. It’s difficult to trust because all these companies may have an interest in making insurance scores and scoring continues.”

Even the past Insurance Commissioner of Texas, now the director of Consumer Federation in the country in charge of insurance sees no relation between insurance and the credit score. “If at all there is a correlation, insurance companies are not able to explain why.  And if because one can correlate will not mean one may use that to make the basis to on setting rates and determine a policy.”

Birny Birnbaum, executive director for the Center for Economic Justice, believes that the practice of using the credit scores as a basis must be prohibited. For instance, credit scores of low-income earners or the financially distressed are too low. If insurance companies likewise deny granting these people insurance, these people basically can’t drive their cars because the law requires them to obtain auto insurance.

Some critics refuse to use insurance scores as their basis and turns to credit scores instead. For them, those computer generated insurance risk codes cannot be trusted because insurance companies won’t reveal how they calculated the codes. Alex M. Hageli, expert at Property Casualty Insurers Association of America, defends the insurance scores, stating that the computer models generating the insurance scores are the fruits of the developers’ careful planning and tremendous time and money for insurers.


Again, the debate continues. Some insurance companies have been using the FICO scores for their operations; others do not and use other types of scores or their own methods instead. Obviously, the inconsistency of the methods used by these companies may raise further questions and criticisms.