There’s a lot that goes into how insurance premiums are calculated and part of that includes your credit history. Credit information is very predictive of future insurance claims, which is why Farm Bureau Insurance, like most insurers, uses this information to help develop accurate rates.
Credit-based insurance scoring is just one of the many factors used to predict the level of insurance risk you represent. When evaluated with other aspects such as claims and driving record history, your credit-based insurance score helps insurers determine if you meet underwriting requirements, and the rate you'll pay.
Because this score impacts insurance premiums, we've been asked a number of questions about credit-based insurance scores. We've compiled a list of the most common questions so you have the answers at your fingertips.
- What is an insurance score?
An insurance score uses information from your credit report to help predict how often you are likely to file claims and how expensive those claims may be. It is important to understand that an insurance score is not the same as a credit score. Insurance scores predict insurance losses and credit scored predict credit delinquency.
- Why is Farm Bureau Insurance® interested in my insurance score?
Credit information and insurance have a strong connection because studies show that consumers with lower insurance scores are up to twice as likely to file an insurance claim as those with more favorable scores. Researchers believe that financially prudent consumers tend to demonstrate that same level of social responsibility in other aspects of their lives. Your insurance score is only one of many factors used in determining the premium for insurance policies.
- How is my insurance score calculated?
Insurers and scoring agencies look at all of the information that is provided in a credit report, such as outstanding debt, bankruptcies, length of credit history, collections, new applications or credit, number of credit accounts in use, and timeliness of debt repayment. The insurance score is then developed using a unique mathematical formula and used either directly within an insurance premium rate formula or a specific propriety model, depending on the insurance company. Farm Bureau Insurance purchases third-party insurance scores from FICO.
- Can my insurance score help me save money on insurance?
Yes. The use of insurance scores provides companies with another way to charge lower premiums to customers who are better risks. Insurance industry experts indicate that the majority of insurance consumers benefit from the use of insurance scores and receive a discount on insurance premiums.
- How will Farm Bureau Insurance treat customers who have little or no credit history?
South Carolina has laws governing how consumers with little or no credit history must be treated. If a consumer lacks sufficient credit history for rating purposes, Farm Bureau Insurance will treat the customer neutrally with respect to credit, meaning they will receive no discount or surcharge.
- How can I improve my insurance score?
There is no one formula to get a “perfect” insurance score because your credit report is ever changing as time elapses, new payment history is added, and accounts are opened or closed. The key to a “good” insurance score is using credit wisely—paying bills on time and exercising common sense in credit-related activities.
It is a good idea for young adults to establish credit early and maintain a good credit profile. It is also good for older adults to preserve a good credit profile, even if major debts have been paid. Financial experts recommend keeping an open credit account with a very small balance that is paid off monthly. This will help ensure that you are seen as a good credit risk and financially responsible for many different types of companies that use credit information.
- How will Farm Bureau Insurance’s request for my credit report affect me?
A request to view your credit report for insurance rating purposes will be considered a “soft inquiry.” This means you will see Farm Bureau Insurance listed on your credit report, but the inquiry will not influence your insurance score or credit score.
- How can I receive a copy of my credit report?
Since the information in your credit report ultimately affects your insurance score, it is important to routinely monitor your credit report. The Fair Credit Reporting Act guarantees consumers access to their credit report for free from each of the three nationwide credit reporting companies – Experian, Equifax and TransUnion – every 12 months. The request can be made for a free report online, by phone (1-877-322-8228) or by mail. To request a copy by mail, a consumer must fill out the Annual Credit Report Request form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can also visit the Federal Trade Commission’s website for more additional information about obtaining a free credit report.