How your credit score affects insurance rates in North Carolina

What is a credit-based insurance score?

A credit-based insurance score is a predictive score calculated from your credit report that insurance carriers use to assess risk. It is separate from your FICO credit score but is calculated from similar credit data, typically by the carrier or a third-party data provider such as LexisNexis or TransUnion.

Research by carriers and actuaries has found a statistical correlation between credit management and insurance claims: people who manage credit responsibly tend to file fewer claims. Most major NC carriers use this score as a rating factor for both home and auto insurance.

What factors affect your insurance score?

The same factors that affect a standard FICO score also affect your insurance score:

• Payment history: missed or late payments hurt significantly
• Outstanding debt levels relative to available credit
• Length of credit history
• New credit inquiries
• Types of credit in use

How much does it affect your rate?

Significantly. A poor insurance score can increase auto or home premiums by 20 to 50% compared to an excellent score with the same carrier, on the same home, with the same driving record. The spread between excellent and poor credit tiers is meaningful and real.

NC law and insurance scoring

North Carolina permits the use of credit-based insurance scores for rating purposes. Carriers must provide an adverse action notice if your score negatively affected your rate, and you can request the factors that affected your score. NC law also limits the use of credit for outright denial of coverage: carriers primarily use it to adjust rates rather than refuse to write a policy.

Which carriers use credit scores?

Most major carriers in NC use credit-based insurance scores. A small number of carriers, primarily non-standard and high-risk specialists, do not. If your credit is poor, an independent agent can identify carriers that weight credit less heavily or not at all.

How to improve your insurance score

• Pay all bills on time. Payment history is the largest factor.
• Reduce outstanding balances relative to available credit.
• Avoid opening multiple new accounts at once.
• Maintain a long credit history. Closing old accounts can hurt.

Carriers typically re-run insurance scores at renewal. If your credit has improved meaningfully since your last renewal, your rate may improve on its own. Re-shopping after significant credit improvement is also worth doing.

Cooper's take

Frequently asked questions