It is increasingly common for insurance agents and insurance companies to ask for your social security number when they give you an insurance quote. Your social security number is necessary to retrieve your credit or financial responsibility score.

Many states are now allowing insurance companies to utilize a person’s financial responsibility score as a rate determining factor (check with your state Department of Insurance to determine if your state allows this).

The idea of using financial responsibility scores to determine insurance rates is hotly contested. But insurance companies and independent research companies have completed studies that prove there is a correlation between your credit score and the possibility you will file a claim during your insurance policy.

Basically, the lower your credit score, the higher the odds your insurance company will have to pay out money for a claim you will file.

PLEASE NOTE: These studies DO NOT state there is a correlation between your credit score and the possibility of you having a car accident, just the possibility of you filing a claim!

The thought process is those who manage their money better will often pay for smaller amounts of damage out of their own pocket, rather than filing a claim. Others, including state legislators and insurance agents believe insurance companies are violating your rights by using a financial responsibility score to determine your rate.

Either way, it’s important to understand that the higher your financial responsibility score (credit score), the lower your insurance rate and vice versa. As you would probably expect, those with higher credit scores typically support the use of such measures in determining insurance rates.

However, it is illegal to use credit scoring in determining car insurance rates in California.

Let’s look at an example: Prior to Bob and Stacy’s state allowing insurance companies to use financial responsibility scores to determine rates, they both paid $1,200 per year for their automobile insurance. Bob has a better credit score than Stacy, but both have similar driving records and similar vehicles. After their insurance company adopted the use of credit scoring to determine rates, Bob now pays $1,050 for his policy and Stacy’s policy increased to $1,350.

It is important to note that even in states where insurance companies are allowed to use financial responsibility scores, some companies choose not to use them. So if you don’t have a great credit score, you may not have to pay a higher rate. However, non-credit scored insurance rates are generally slightly higher than insurance scored rates, assuming you have good credit.

Contact your insurance company or agent to determine if your financial responsibility score was used to calculate your insurance rate. Legally, you should have been notified of this prior to the completion of your quote.