Thursday, October 13, 2005

Credit Scores, Arbitrage, and Insurance Premiums

We know that insurance companies routinely check the credit ratings of folks who apply for coverage, whether it be of the home, auto, or any other variety. So my recent posts about credit-card arbitrage brought up an interesting question:

If you're doing the arbitrage thing, and because of it, your credit score has taken a hit, can it increase how much you're paying in insurance premiums?

I didn't have an answer for this — a suspicion, yes, but no answer — so I made a few phone calls. According to the person I spoke with at Farmers Insurance, the way credit ratings are handled varies with each insurance company.

In the case of Farmers, they will only take your credit rating (it's scored not in the usual manner, but on a scale of A - B - C - D - E) into account on a couple of occasions. This would be when you (1) initiate a policy, or (2) make a change to a policy. They do not check the insured's credit rating when policies simply renew (usually annually or semiannually).

Just for fun, I went ahead and called an Allstate agent also. When asked how often Allstate would take into account an individual's credit rating — their scoring system is called "IFS," and it looks at more than just someone's credit score — this agent responded that Allstate only takes it into account when new business is opened; i.e., upon initiation of a new policy. He told me that their system can initiate an IFS check every two years on current policyholders, but that he has never seen anyone's policy premiums automatically adjusted by the system.

So, as best I can tell, as far as your insurance premiums are concerned, there's not much need to worry about your credit score being wounded from a credit-card arbitrage play. That's unless, of course, you're going to be (1) initiating a new policy, or (2) changing your current one in the near future.

It's worth noting that each insurance company handles credit ratings differently, so it might not hurt to ask yours about their policies before you undertake any potentially-FICO-damaging activities.

Related Posts
Capital Ideas: "Fallout from 0% Balance Transfer Campaign" (2005-10-16) "Who Cares About Credit Score Anyway?" (2005-10-18)


— Posted by Michael @ 12:08 PM


It ticks me off that people with no debt (read: a lousy credit score) get dinged by insurance providers. Can't they do some type of thinking and do some workaround evaluation or something? AAA really burned me on this a year ago.


Hello. A new reader here. Just want to say that your Excel Spreadsheets Page is so helpful. Hope you don't mind that I've linked it to my page so I can experiment with them...and I am sure they would be a great resource for others as well. Thanks.


Michael,thanks for the encouragement & feedback. I am sure I'll learn so much by blogging, and of course, reading others...great resources & inspiration!


Arrrrghhhhh. I hate the way insurance companies operate. Their private database that tracks information about you and can lead to cancellation or rate adjustments really bothers me. If they are going to use it to determine your costs, you should be able to see exactly what's in it. (I can't remember the name of it)


Everybody Loves Your Money


A credit rating exercise and real networth both are two different things.Credit score may go up,but the individual's networth may not be worth a while.I do not believe in paper rating.It can be made very beautiful like a balancesheet with projected figures shown as real ones.2nd part is doing business with one's own money or doing business with a well managed debt.It all depends how one manages his debt.It is time for debt management.


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