The Impact of Credit Scores on Insurance Rates

Why would credit have anything to do with auto or homeowners insurance? In most states - Ohio included - insurers use information from a person's credit history as one factor to help in determining eligibility or pricing for home insurance and car insurance policies.

But insurers generally aren't using the same consumer credit score that a lender might see, and credit is only one potential rating factor that goes into the equation. There are also state laws that determine how credit information can be used. Let’s get into the impact that credit scores have on insurance rates in Ohio.

Credit Score vs. Credit-Based Insurance Score

A traditional credit score is designed to help lenders assess credit risk when you apply for financing. Mortgages, loans, and credit cards use this data to get an idea of your financial situation and likelihood to repay. But a credit-based insurance score is different. It’s designed to help insurers evaluate insurance risk - the likelihood you will file repeated, costly claims. Fair Isaac Corporation (FICO) introduced credit‑based insurance scores early in the 1990s, and today it’s estimated that roughly 85-95% of personal property insurance providers use them to determine rates.

Why is this? Studies have been done and numbers have been run and there have been clear correlations drawn between folks with a lower credit score and those who present more risk to insurers. That risk bears out in a greater frequency of claims and more costly claims. So while a credit-based insurance score and a credit score aren't necessarily the same number, there are parallels. And these bear out in the impact on insurance rates. In fact, in Ohio, drivers and homeowners who have poor credit could end up paying 30% higher than those whose credit is in the “good” to “excellent” range.

• Excellent Credit (750+): lowest premium tiers, best available rates
• Good Credit (700 - 749): small rate increases, most discounts remain available
• Fair Credit (650 - 699): measurable rate increases - 15% to 30%
• Poor Credit (Below 650): significant surcharges, potential to decline new business
• No Credit History: often treated similarly to low scores

Ohio law prohibits insurance companies from using credit history or a credit score as the sole factor to impact insurance decisions. Ohio policyholders also have the right to request an extraordinary circumstances review in the event that they have recently faced financial challenges due to a divorce, job loss, or medical emergency that have negatively impacted their credit score. And if you know that your credit score has improved since you took out a policy, or if you have fixed a previous error on your credit report, annual reviews are the ideal time to ask your insurance agent if you may now qualify for a lower rate.

How Credit Affects Auto and Homeowners Insurance

Credit score does not affect every type of insurance policy. For instance, in Ohio, only auto insurance, homeowners insurance, and renters insurance rates can be directly impacted by the policyholder’s credit-based insurance score. But they may not apply universally, as each provider can have their own policies.

That said, this is not the only factor that is weighed when insurance rates are being decided.

Auto Insurance Rate Factors

• Driving record
• Claims history
• Location
• Vehicle
• Vehicle use
• Annual mileage
• Coverage selections
• Deductibles
• Characteristics permitted under state law

Homeowners Insurance Rate Factors

• Property location
• Replacement cost
• Home characteristics
• Age and condition of certain systems
• Claims history
• Coverage limits
• Deductible
• Protective devices

While improving a credit score can impact rates for the better, it is clearly not the only data point at play. It’s also true that credit isn't the only reason your insurance rate may change. Sometimes a rate increase has nothing to do with anything you’ve done personally and can instead be linked to carrier-wide rate changes and an across-the-board increase in repair and replacement costs. Changes in available coverage, recent claims trends and shifts in location-related risk factors also play a role.

Work With an Independent Insurance Agent

An independent insurance agency and their agents can help customers to better understand the factors affecting a quote they are given. They can present a customer with a range of options while also evaluating deductibles and coverage limits. Independent agents can conduct a thorough review of existing home and auto insurance coverage and identify potential discounts that may save on premiums. And they can help customers to review their policy and insurance needs when circumstances change. While an independent insurance agency and their agents cannot "fix" a credit-based insurance score or guarantee a lower rate, they have more options available than an agent who is tied to an insurance provider. They have far more leeway to help clients find coverage that better meets their needs and budget.

Your Source for Car Insurance and Home Insurance in Kent, Ohio

There are many variables used to price insurance, of which credit rating is just one. Yes, credit-based insurance information can influence auto or homeowners insurance rates, but it is generally only one piece of a much larger rating process.

Wondering what's affecting your home or auto insurance premium? Our independent insurance agents can review your current coverage, explain the factors that may influence your rates, and compare options from the insurance carriers we represent. Contact BK Insurance & Financial Services today to schedule an insurance review and find the right coverage for your needs. From car insurance in Kent to home insurance, life insurance and beyond, we’re here to help.