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Errors on your Credit Report May Raise Your Insurance Premium

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Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency...

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Reviewed byJoel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Depending on which state you live in, your credit history may be used to determine your homeowner’s, auto, and/or business insurance rates.

While hotly contested, the practice is highly favored by insurance companies and will likely be around for some time to come, if not indefinitely.

It is believed that roughly four out of every five credit reports contain errors, so the odds are clearly not in your favor.

And these errors could mean you’re paying a higher insurance premium than you deserve.

Regularly checking your credit report and C.L.U.E. report for errors will help ensure you are not being unjustly overcharged for your insurance coverage.

Insurance companies use an “insurance score,” which is calculated similarly, but uses a slightly different formula than a typical credit score.  It’s one of the many factors that may be used in determining your insurance rate.

My experience as an insurance professional has revealed to me that there are a number of insurance agents unaware that the companies they represent are using the practice.

Providing your Social Security number in order to receive an insurance quote is a big tip your credit history will be reviewed for the purpose of determining how much to charge.

However, insurance scoring is not mandatory to calculate rates and regularly depends on what type of insurance company you have/intend to get your policy with.

Typically, standard companies, which only accept “preferred risks”, make credit scoring a requirement in order to receive a rate.

If you don’t have a credit history, or have very little credit history, you will simply be assigned a “no-hit” or “thin hit” score, which means you’ll be stuck with a “less than desirable” rate.

Non-standard insurance companies, which provide insurance for drivers who have a greater chance of filing insurance claims based on their MVR, usually have the option of purchasing a policy that does not use credit score as a rating factor.

As a result, these drivers are more likely to pay more for insurance than a standard company would charge.

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