by Rich Schlueter

As far-reaching as credit scores have become, it is still difficult to believe that your credit score can have a significant impact on auto and home insurance fees. It is called an insurance score, and it can cause considerable damage to your pocketbook.

What is an insurance score?

Insurance scores are confidential rankings based on your credit history. They are not a measure of your financial assets, but they supposedly measure how well you manage your finances.

Why are insurance scores used?

Insurance carriers are convinced that there is a direct relationship between above average credit and low loss history. The simple explanation is that the sense of responsibility necessary to adequately manage personal finances is the same responsible behavior that results in fewer and smaller losses.

What is the net effect?

Ironically, the net effect of insurance scoring has, in most instances, actually lowered the cost of auto insurance for consumers.

What laws protect me?

Federal and state laws exist to help define credit scores and, in most instances, protect consumers from unfair credit practices. Two of the most significant laws include:

Requiring insurers to notify consumers if the consumer experiences adverse action on his or her policy to his or her insurance score.

Consumers have the right to correct errors on their credit scores and to require insurance carriers to recalculate scores.

What can I do?

Obviously, keeping your credit score as high as possible will have a positive effect on your insurance rates.

Individuals should also be proactive in terms of checking their credit to ensure that the history is accurate. Also, they should be proactive with their insurance carriers. If a consumer feels that his or her credit has improved, he or she should demand that the carrier rerun the insurance score since an improved score could lower his or her premium.