Like many consumers, you may be wondering what your credit information has to do with what you pay for auto insurance. We'll explain how and why credit information is used by the Progressive group of companies and other insurance companies and how it affects the cost of your auto insurance. Progressive's use of credit varies by state to comply with the laws of each state

 

What You Should Know About Insurance Credit Scores

What is an insurance credit score? We assemble data about the accident experience of people who have been insured with us and other information we think may help us (industry accident data, for example) and we analyze it to determine what pieces of information can help us to understand the likelihood that someone will have a future claim or accident and the likely size (dollar amount) of that claim. We then use that information to determine an accurate price for a given individual's next six-month policy. There are things about a person and their driving history that help us understand the likelihood that they may become involved in a future claim. For example, we recently reviewed the information of more than a half million drivers and found that those who had a speeding ticket in the past three years are generally twice as likely to have an at-fault accident. This data help us to understand the likelihood that someone will have a future claim or accident, so we use it in pricing. One of the pieces of information we've found to be predictive of future accidents is a person's credit history, so we, and most insurers, use this information to help develop more accurate rates. What is a credit rating? Credit ratings are different from insurance credit scores. A credit rating is based on your ability to repay amounts you have borrowed, whereas an insurance credit score predicts the likelihood of you becoming involved in a future accident or insurance claim based on information we have on previous claims by policyholders with similar credit characteristics. In determining credit ratings, banks and other lenders may factor in your income, job history and other matters that might affect your ability to repay a loan. Also, although banks can deny you a loan based on your credit rating, Progressive won't deny you a policy based solely on your insurance credit score. How can you tell if you are likely to have a good insurance credit score? If you consistently pay all your bills on time, you'll generally have a favorable score. Each insurance company creates its own scale for evaluating insurance credit scores. At Progressive, we review information that our data suggest will help us predict whether you'll be involved in a future crash. The lower your Progressive score, the better. Favorable factors might include: Long-established credit history No late payments No past due credit card accounts Low use of available credit Unfavorable factors might include: Numerous past-due payments Recent past-due installment loan payments High use of available credit If you have an unfavorable insurance credit score, is there anything you can do to make it better? While there are some things that are out of your control (having a short credit history, for instance), you can generally improve your score with Progressive by managing your finances well and by paying all of your bills on time. Also, look at how much credit you have available -- if you are using all or nearly all of your available credit, it can be regarded as an unfavorable factor. What if you think some of your credit information is inaccurate? You should review your credit information annually to ensure that it is accurate. Contact the credit reporting agencies for a copy of your report. If you find a mistake, you should ask the reporting agency how to correct the information. However, you should know that credit reports are generally accurate.   How and Why Insurance Companies Use Insurance Credit Scores Do all insurance companies use credit? Most do. According to a recent survey by Conning & Co., a Hartford, Connecticut based research firm, 92 percent of insurance companies use credit information when underwriting new policies. It's important to note that credit score is just one of several underwriting tools the Progressive group of companies considers when determining rates; we also consider rating variables such as driving record, type of vehicle, where you live, your gender, your age, and other factors. How do insurance companies determine rates? Companies group customers based on similar characteristics, evaluate their claims experiences within these groups, and determine what to charge individuals with characteristics similar to members of the group. Companies charge a higher rate for customers who are more likely to have claims, and a lower rate for customers who are less likely to have claims.   What factors besides credit are used to determine rates? Credit is one of several underwriting variables that we review. In addition, we also consider a number of other rating variables. The most common variables companies consider are: Driving record Vehicle type Age Gender Garaging location Each company evaluates consumer information differently to determine rates - that's how they compete with each other. In addition, each state has its own set of insurance regulations - in certain states, some of the factors listed above cannot be used to determine rates.