Recently, I was informed by my homeowners’ insurance company that my insurance rates will be going up, in part because of my insurance score. That surprised me. I monitor my Transunion and Vantage credit scores regularly. I use CreditKarma.com and occasionally I will purchase a FICO score. My credit scores have consistently remained in the excellent range.
I called my insurance company to find out what an insurance score is and how it is calculated. They told me they use the Transunion Insurance Score, which is different than any of the credit scores I’ve been monitoring. My insurance company sent me the following credit-based characteristics that impact the insurance score:
- Open credit cards (called “open revolving accounts”)
The number of open credit cards in your credit report can predict the potential for future insurance loss risk. For example, in Transunion’s score model, five or more open credit cards can negatively impact your score.
- New accounts opened within the past three years
Analysis shows that consumers who have more new accounts have a higher loss risk. Transunion’s scoring model compares the number of accounts opened in the past three years to the total number of current open accounts. If this ratio is 50% or more, it will impact your score.
- Length of time credit cards are open
Analysis shows that consumers with longer active credit card histories have lower loss risk than those with shorter credit card histories. According to Transunion, it is optimum for the average age of your credit card accounts to be 10 years or greater.
- Student, car, and home loans with fixed monthly payments (called “open installment accounts”)
Your insurance score may be impacted when three or more open installment accounts appear on your credit report or if there are fewer than two installment accounts. The presence of two open installment accounts is considered optimum.
You may say to yourself, as I did, “This does not make any sense. How can my creditworthiness be a predictive indicator of a potential future insurance loss risk? If my credit scores are all in the excellent range, then my insurance score should be excellent – right?” Like me, you may wonder, why are they using different criteria than what is used to determine a FICO credit score?
After I asked the New Hampshire Insurance Department, they responded that in the state of New Hampshire and throughout the country, insurance companies can use your insurance score as one of the criteria to set insurance rates. My experience shows that it’s critical to know what determines your homeowner’s insurance rate, reevaluate your coverage every year, and always ask questions about rate increases.