Q: My auto insurance company increased my premium because of adverse information on my credit-based insurance score: too few credit accounts. I have two credit cards and don’t want any more. How can they do this?— Marilynn Miciek, Denver
A: Credit scores are typically used to help lenders or issuers of credit cards determine whether an individual is a good risk.
Credit-based insurance scoring uses the same information to determine whether an individual is a worthy insurance risk. But they’re not looking to see if you’ll pay the premiums.
They want to know whether you’re a risk to make any claims, and somewhere in the insurance world, someone correlated poor credit scores with a greater likelihood to file a claim.
The practice has been controversial from the outset — critics contending that creditworthiness has little to do with how well you drive your car — but insurance company access to your scores remains protected by the Fair Credit Reporting Act.
Not every insurance company uses the model, and many others will have their own formula that will use the score as a component.
Some states — not Colorado — have restricted the use of credit- based insurance scoring and it’s a oft-attempted policy shift each year.
The formula used to determine a credit-based insurance score is different than one used for creditworthiness, according to the folks at Fair Isaac, the devisers of the FICO score we all rely on. Then there are other factors such as driving record, type of car, where it’s parked, etc.
In your case, your premium was increased because of adverse information on your report — the existence of two or fewer accounts. I can’t disagree that an individual should have the right to have as few credit cards as they please without it impacting their score, especially if their credit history is a good one.
However, everyone is different in FICO’s eyes, and the lack of credit — such as too few accounts — is a bigger ding against someone with a long credit history than someone who is just starting out.
Sadly, it also means you’d have to add credit to improve the score. Or you have another option: change insurance carriers to one that doesn’t base its rates on credit scores.
