Why Did My Auto Insurance Company Check My Credit?

Many auto insurance companies use a credit insurance risk score to determine how likely you are to cost them more. There are a few insurance companies that do not. Some states do not allow this check. Others do. Nevada does. Some refer to it as “soft hit”, also called “credit based scoring”. This is NOT the same as a credit score used by lending institutions.

Auto insurance companies use advanced algorithms that take into account numerous factors when determining your monthly auto insurance premium. Some things that factor into the calculation make sense, like your driving record, claims history, marital status, age, and make/model of your vehicle. Other things, like whether you rent or own your home and your education level, aren’t at all related to your driving habits, and it may seem strange that they should affect your monthly rate.

One seemingly unrelated factor that can affect your premium is your credit history. Generally speaking, a driver with an excellent credit score will pay anywhere from $68 to $526 less than someone who has a good credit score, even if their driving and claim history is identical.​

Your Auto Insurance Rate May Have Nothing To Do With Your Driving

In Nevada, auto insurance companies can use 3rd party companies such as the Fair Isaac Corporation, Lexis Nexis, and TransUnion to assist insurance companies in determining risk, which in turn affects rate. They use a numerical score to determine risk.

Factors that can affect your auto insurance premium you’ll want to be conscientious of are:

Late payments, credit history length, having high balances on your credit cards, bankruptcies, foreclosures, tax liens, if you’ve opened a few accounts recently, or had a number of recent credit checks ran, and others.

Different auto insurance companies weigh different factors of your credit based scoring differently. Meaning that one insurance company may look heavily at credit history, and another may focus on past driving experience and whether the driver has been responsible and kept insurance continuously. It’s important to understand that you must be “rated” on a policy. This means that you have always been named on your own auto policy, or a parent’s policy, a relative, someone’s policy. Not just driving “with permission”.

What Impacts My Credit-Based Auto Insurance Score?

Your FICO credit score is based on roughly 130 factors. However, there are only about 30 factors that your auto insurance company uses to build a proprietary score that they use when calculating your riskiness. While there are factors that cannot be used to come up with this score, like your age and your occupation, the process is otherwise shrouded in mystery.

Improving Your Credit-Based Auto Insurance Score

A big one is to always keep coverage. Don’t allow any breaks in your auto insurance coverage. Try to keep your car covered for more than the absolute least amount allowed by law. If you insure yourself for more than what the state makes you carry, your rating will be more favorable to you. The score your auto insurance builds and uses is different from your FICO score, so you can’t necessarily use that to guess how your credit is impacting your premium. However, just as you can improve your FICO score over time, you can also take steps to improve your credit-based auto insurance score. Focus on keeping the balance on your credit cards at around 10 percent of the credit limit, pay your bills on time, take care of any outstanding debt or judgements that you have, and report any errors on your report.

Getting a Credit Score Exception

If you are in Las Vegas, Nevada and you have suffered from an extraordinary life event that has a negative impact on your credit history, such as catastrophic event, a death in your family, military deployment overseas, or identity theft, then you may be eligible for an exemption from the use of credit information by your auto insurance provider. State law allows your insurer to require written and verifiable documentation that such an event has occurred and that it had a direct impact on your credit score. Your auto insurance agent can guide you through the process if you qualify.