Yes, most Pa insurance companies do review your credit rating when determining your pennsylvania car insurance rate. According to a recent survey by Conning & Co., a Hartford, Connecticut-based insurance research firm, 92 percent of all insurance companies use credit information when underwriting new policies. However, your credit rating is not the only factor that insurance carriers consider when determining your insurance rate. They also look at your driving record, what type of vehicle you are insuring, your age, your gender, where you live, and other factors.
Insurance companies include your credit rating when determining your insurance rate for several reasons. Carriers have found a correlation between a person’s financial history and their future insurance loss potential. Your financial history helps them to classify you according to your potential risk. Your credit history helps the insurance carrier to underwrite the policy at a cost that accurately reflects your specific risk.
Insurance companies are not discriminating against specific people or population groups by using credit reports when underwriting auto insurance policies. Credit scores are strictly based on objective financial data, they are not based on your gender, age, race, where you live, how much money you make, where you work, what type of job you have, or whether you are disabled.
To understand how your credit rating affects your insurance premiums, we need to discuss certain credit terms and what they mean. Those terms include credit report, credit score, and insurance credit score.
A Credit Report
A credit report contains information regarding your credit history. It notes whether or not you have missed or been late on your payments in the past, and how late you were. It lists any credit card accounts and current balances you may have, as well as past credit card accounts, even if those accounts have been closed or canceled. It also lists your auto loans, mortgages, and any other sort of loan or credit which you have been issued, along with balances and how diligent you are about making the payments. The number of times you have recently applied for credit will be available to view, along with information on any collections and past due accounts.
A credit score is a number that represents your calculated measure of credit risk. Credit scores are the result of a complex mathematical formula that takes into account numerous factors in your credit history. Put simply, your credit report is scored against millions of other people’s reports, generating consumer credit scores. Credit scores are affected by elements in your credit report, such as:
- Number and severity of late payments
- Type, number and age of accounts
- Total debt
- Public records
Insurance Credit Score
The insurance credit score, like a credit score, is numerical and based on the applicant’s credit history. Credit-based insurance scores “are numerical summaries of consumers’ credit histories.” They are usually calculated using information about (1) past delinquencies (e.g., bankruptcies); (2) debt ratios (i.e., how close a consumer is to his or her credit limit); (3) new credit inquiries or applications; (4) the length of credit history; and (5) the use of certain types of credit (such as automobile loans). The score usually incorporates other factors, such as an applicant’s age, gender, geographical area, number of previous accidents, and number of traffic infraction tickets received.