Unknown to most Texans, auto insurance companies have a scoring system that they utilize to determine your auto insurance rates. This shrouded in mystery system that they work with is called an insurance scoring system. In reality though, this is simply a cleverly disguised phrase for a credit report rating system. Shockingly enough, the state of Texas allows this system to continue, in practice without restrictions.
What Actually Is the Insurance Score?
The truth is out— insurance scores are created entirely from information obtained on your credit report. The major auto insurance outfits like Progressive, Nationwide, State Farm, and All State claim that this credit information is actually quite effective in predicting the future auto insurance claims and accidents of their clients and prospective customers. This is why the major insurance companies and many of the minors collect this information to assist them in creating what they claim are more accurate rates. Most every one of the insurers maintains their own system and methodology for analyzing your credit bureau information. Some of the information that they use to create these methods and systems are gathered from their insured customers. These include your history of accidents and insurance claims as well as your credit bureau report information.
The auto insurance majors claim that the results of these evaluations inform them as to what credit information will allow them to accurately forecast what your chances are to become involved in a future accident and to file an insurance claim. They assign an unknown value to every one of their predictive factors from your credit history and then compile these values to come up with your mysterious insurance score. The lower your insurance score, the lower your rates will be. It does not matter to the auto insurance companies that a person’s credit history does not at all determine whether he or she is a safe driver and will have an accident or not.
The Specific Credit History Factors that Determine Your Insurance Score
The auto insurance companies have even made public the credit bureau factors that they consider in coming up with these insurance scores. They admit that better credit information leads to lower premiums. They try to qualify this by stating that since both below- and above-average elements in your credit history are considered, you can still get a lower premium even if you have some negatives in your credit report. Among the favorable elements that they consider from your credit report are:
• A long and well established credit history
• No past due accounts or history of late payments
• A large number of open accounts in good standing
• Lower utilization of available credit
Negative credit history factors that the car insurance Texas companies scrutinize closely include:
• A number of past due accounts and payments
• Accounts in collection
• A great number of recently applied for credit cards or loans
• High utilization of available credit limits
Insurance companies will tell you that they are careful to obey the laws and restrictions that each state places on what data points they are allowed to collect and examine in determining your auto insurance rates. The problem is that not all states, Texas included, place such restrictions on this nefarious practice of insurance scoring based on credit history.
Do Insurance Companies Claim that Credit Scores Equate with Insurance Score?
The really hypocritical part of the entire process is that insurance companies claim that their insurance scores are not the same thing as your credit score. They state that credit scores are derived from your capability of paying back monies that you have borrowed, while insurance scores merely forecast the chances of you getting into an accident in the future and then filing an insurance claim. This information comes from their policyholders with similar credit backgrounds and who filed past claims with them.
They try to explain away the uncannily similar results between insurance scores and credit scores by saying there are actually important differences. Banks and lending institutions will also consider your employment history, income, and similar issues such as assets and bank account balances when they decide if you are a good credit risk and are likely to pay back your loan. They say that banks can choose to refuse to offer you a loan entirely because of your credit score. Auto insurance companies on the other hand never look at employment history or income level and would never refuse to insure you or provide you with a policy just because of your insurance score, also known as your credit score. Welcome to the auto insurance world of smoke and mirrors.