Understanding Credit-Based Insurance Scores

Shopping for insurance in Tennessee can be tricky – especially when you learn that your credit history can influence your premiums. Insurers in Tennessee (and most other states) use something called a credit-based insurance score to help set rates for personal insurance lines like auto, homeowners, and renters policies. This score is related to your credit, but it isn’t the same as the standard credit score used for loans. In this post, we’ll break down what a credit-based insurance score is, how it’s used in pricing policies, what factors go into it, how you can improve it, what’s not included, and the Tennessee-specific rules governing its use.

What Is a Credit-Based Insurance Score (and How Is It Different from a Credit Score)?

A credit-based insurance score is a three-digit number derived from your credit report data, used by insurance companies to predict the likelihood that you will file an insurance claim in the future. In other words, it’s a measure of your insurance risk based on aspects of your credit history. This is different from a regular credit score, which predicts your likelihood of repaying a debt (e.g. whether you’ll pay your credit card or loan on time)​.

Key differences between an insurance score and a standard credit score include:

• Purpose: A regular credit score (like FICO or VantageScore) estimates the chance you’ll be 90+ days late on loan payments, whereas a credit-based insurance score is designed to predict how likely you are to file insurance claims that result in losses to the insurer​.

• Usage: Lenders use credit scores to decide on loans and interest rates. Insurers use insurance scores as one factor (among many) to decide whether to issue a policy and at what premium. The insurance score helps determine your rate tier – a higher insurance score (indicating lower risk) may qualify you for lower premiums.

• Calculation: Both scores draw on similar information from your credit report, but they weigh factors differently. They are separate scores. For example, you might have a great credit score for lending, but your insurance score could be slightly different because it’s tuned to predict claims, not credit defaults​. Each insurer may use a proprietary formula or a scoring model from analytics companies (like FICO or LexisNexis), so there isn’t one universal insurance score scale​. Generally, however, if you have good credit, you likely also have a favorable insurance score (though not always)​.

In summary: Your insurance credit score is not the same as your bank credit score, but it is based on your credit report. Think of it as a cousin to your credit score – built from similar ingredients, but used to answer a different question (Will you file a claim? vs. Will you repay a loan?).

How Insurers Use Credit Scores in Tennessee Personal Insurance

In Tennessee, insurers are allowed to use your credit-based insurance score as one factor when underwriting and pricing personal insurance policies such as auto, homeowners, condo, or renters insurance​. Most major insurance carriers do use credit information because studies have shown a strong correlation between certain credit behaviors and the likelihood of future insurance claims​. Essentially, statistical research (including a study by the Federal Trade Commission) found that individuals with lower insurance scores tend to file more claims, and those with higher scores tend to file fewer or less costly claims. ​Because of this link, insurers factor in credit to more accurately price risk – often offering lower premiums to customers with better credit-based insurance scores (and higher premiums to those with poorer scores)​.

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Here’s how credit-based insurance scoring comes into play for Tennessee insurance shoppers:

• One Factor Among Many: Insurance scores are never the sole factor determining your rate. Tennessee regulations explicitly require that credit info be used in combination with other risk factors, not on its own​. For auto insurance, for example, your driving record, age, vehicle type, location, prior claims history, and other factors also significantly influence your premium. The credit-based score is just one piece of the puzzle. In fact, Tennessee law forbids insurers from denying, canceling, or non-renewing a policy solely due to credit information without considering other factors​. It’s an additional metric to refine your rate – not a make-or-break number by itself.

• Widely Used for Personal Lines: Insurers writing auto and home policies in Tennessee commonly incorporate credit-based insurance scores in their rating algorithms (unlike in a few states that ban credit use altogether). When you request a quote or apply for a policy, the insurer (with your permission or via a disclosure) may pull your credit report to generate an insurance score. Tennessee companies must disclose on the application or at the time of quote if they plan to obtain your credit info for underwriting​. Typically, you’ll see wording like: “We may review your credit report or use a credit-based insurance score based on that report”​. This means your credit history will be factored into determining your premium. Nearly all major carriers in the state do this for personal auto and property policies because it helps segment customers by risk more effectively​.

• Effect on Premiums: If your insurance score is high (indicating good credit management), you’ll often get a better rate – sometimes significantly lower. If your score is low, you might pay more. In fact, a nationwide analysis showed that in many cases a poor credit-based insurance score can raise auto insurance rates even more than a DUI would. While that specific stat is dramatic, it underscores how powerful credit can be in pricing. For homeowners insurance, the pattern is similar: good credit can mean discounts, poor credit can mean surcharges. Every insurer sets its own rate impact, so the difference varies by company. The key point is: maintaining good credit can save you real money on insurance.

• Separate Scores for Different Lines: You might have slightly different insurance scores for auto vs. home vs. renters insurance. Some scoring models are specialized by line (since claim patterns differ for auto and home). For example, LexisNexis offers a score range roughly from 200 to 997 for personal insurance, with higher being better​. A score that qualifies as “good” can differ by insurer: one company might consider 750+ as excellent, another might use 700+ as their top tier​. Regardless, if you have a solid credit history, you will likely be in a favorable tier for all personal policies.

• Opportunity for Re-Evaluation: Tennessee’s regulations give consumers opportunities to have their insurance score updated. Insurers must refresh your credit information at least every 36 months (3 years) for policyholders, or they must notify you of your right to request a rerun of your insurance score at renewal​. This means if you’ve been with an insurer for a few years, they can’t just rely indefinitely on an old credit pull – they need to check again so that improvements in your credit can potentially lower your rate. In practice, many insurers automatically re-order an updated insurance score every renewal or every couple of years. If your credit has significantly improved since your policy started, you can also ask your insurer to re-check it; Tennessee law ensures you have this right at least on a yearly basis if the insurer isn’t already doing it. This is great for policyholders – positive changes in your credit should eventually be reflected in your premiums.

Factors That Influence Your Credit-Based Insurance Score

What exactly from your credit report goes into that insurance score number? Insurers use many of the same factors that make up your regular FICO credit score, but they may weigh them a bit differently. According to the National Association of Insurance Commissioners (NAIC) and FICO, the five main components of a credit-based insurance score are​:

• Payment History (around 40%) – Whether you’ve paid past credit obligations on time. This includes any late payments, delinquencies, defaults, or collections on credit cards, loans, etc. A history of consistent on-time payments will boost your insurance score, whereas frequent late payments or accounts in collection will hurt it​. (Insurers see this as a measure of responsibility – folks who manage bills responsibly tend to manage other risks responsibly too.)

• Outstanding Debt (around 30%) – How much debt you currently carry in total. This factor looks at balances on your credit cards, loans, and other lines relative to your available credit. High balances close to your credit limits (high credit utilization) can negatively impact your insurance score​. Lower overall debt and not using all your available credit is viewed favorably.

• Length of Credit History (around 15%) – The age of your credit accounts – how long you’ve been using credit. This can include the age of your oldest account and the average age of all accounts. A longer, established credit history tends to contribute to a better insurance score (all else being equal)​. Young or very “thin” credit files may score lower simply due to limited history.

• Recent Pursuit of New Credit (around 10%) – How many new accounts or credit inquiries you’ve had lately. Opening several credit cards or loans in a short period can be a red flag and may ding your insurance score slightly​. This factor considers the number of recent “hard” inquiries and new accounts. One or two new credit inquiries likely won’t hurt much, but a flurry of applications might. (Note: Certain inquiries, like those for insurance quotes or soft pulls, do not count against you – more on that later.)

• Credit Mix (around 5%) – The variety of credit types you use, such as credit cards, auto loans, mortgages, student loans, etc. A balanced mix of revolving credit (cards) and installment loans can modestly help your score. This factor is relatively small; you don’t need to have every type of credit, but showing you can handle different kinds (like a car loan and a credit card) may improve stability in your score.

These are essentially the same categories used in traditional credit scoring, and you can see the emphasis is heavily on payment history and debt. No single item on your credit report will make or break the score on its own; it’s the overall picture that matters​. Also note that each insurance company’s model might weight things a bit differently – for example, another model might put slightly more or less emphasis on one category – but in general the above breakdown is a good guideline (the percentages given are from FICO’s model as a typical example​).

Importantly, some specific entries on your credit report are usually ignored or treated neutrally in insurance scoring by rule. Tennessee law says that certain kinds of inquiries and collections cannot be used against you in an insurance score​. For instance, “soft” inquiries or promotional credit inquiries that you didn’t initiate will not count negatively. Also, if you were rate-shopping for a mortgage or auto loan and had multiple lenders pull your credit within a short timeframe, those are counted as one inquiry (so you’re not penalized for being a smart shopper). And medical collection accounts are generally not counted negatively if the credit report identifies them as medical debt​. These safeguards ensure that normal, responsible financial behavior (like checking insurance quotes, or getting a few mortgage quotes, or having a one-time medical bill issue) won’t unfairly drag down your insurance score.

Tips to Improve Your Credit-Based Insurance Score

The good news about credit-based insurance scores is that you have the power to improve them. Since they are based on your credit report, improving your underlying credit will raise your insurance score and eventually lead to better insurance rates. Here are some practical steps for Tennessee policyholders to boost their credit-based insurance score:

1. Pay your bills on time, every time. Payment history is the largest component of the score, so make it a priority to avoid late payments. Set reminders or automatic payments to ensure you don’t miss due dates. If you have any past-due accounts, work on catching them up because bringing accounts current will start helping your score. Over time, a consistent record of on-time payments will significantly improve your insurance score (and your regular credit score too).

2. Manage and reduce your debt. Try to keep balances on credit cards and lines of credit low relative to your limits. High credit utilization can hurt your score, so paying down credit card balances can give you a double benefit – it improves your credit profile and likely your insurance score​. If you have a lot of outstanding debt, chip away where you can: paying off loans or reducing what you owe will generally raise your score over time.

3. Be prudent about new credit. Only apply for credit when necessary. Each new hard inquiry (for a loan or credit card) can have a small negative impact, and opening several accounts in a short period can signal risk. Space out credit applications and avoid opening multiple new credit accounts right before shopping for insurance. Remember, getting insurance quotes does not affect your credit – those inquiries are “soft” and have no impact. It’s the credit card and loan applications that you want to moderate.

4. Build a long, positive credit history. The longer your credit history, the better for your insurance score. You can’t fast-forward time, but you can avoid actions that inadvertently shorten your history. For example, think twice before closing your oldest credit card accounts – keeping an old account open (even if you don’t use it much) can help lengthen your credit history age. Likewise, avoid frequently opening and closing accounts. Consistency is key. If you’re just starting out, consider maintaining at least one or two accounts over many years.

5. Maintain a healthy mix of credit (gradually). While you shouldn’t take on debt just for the sake of credit mix, showing you can handle different types of credit can help your score slightly​. If you only have credit cards, for instance, your score might improve over time once you also responsibly manage an installment loan (like a small auto loan or student loan). Do not open a new loan solely to “improve mix” unless it makes financial sense for you – this factor is small. But as a long-term strategy, having a blend (credit card, maybe a car loan or mortgage eventually) is beneficial.

6. Check your credit reports for errors. Mistakes on your credit report (like an incorrectly reported late payment or a debt that isn’t yours) can drag down your score unfairly. You’re entitled to a free credit report annually from each bureau – use AnnualCreditReport.com to get them. If you find inaccuracies, dispute them with the credit bureau to get them corrected. Cleaning up errors can sometimes give your score a quick lift. And even if everything is accurate, reviewing your reports helps you understand what might be affecting your score and monitor your progress​.

7. Be patient and consistent. Improvement won’t happen overnight, but every positive step counts. Insurance scores will respond to sustained improvements in your credit habits. Keep at it – as your credit score climbs, your insurance score should follow. Many experts suggest that within 6–12 months of diligent credit management, you can see noticeable improvements. Tennessee insurers will periodically update your insurance score (or you can request it at renewal), so the effort will pay off in the form of premium savings down the line​.

Special note: If your low credit score is due to a major one-time life event (like a hospitalization, temporary job loss, or other crisis), talk to your insurance agent. Insurers can make exceptions so that a period of hardship doesn’t count against you in the scoring. You may need to provide an explanation or proof of the circumstance, but it can result in the company using a more favorable “neutral” score for you​. This can immediately help your premium while you work on rebuilding your credit.

What Insurers Do Not Consider from Your Credit

It’s important to understand that credit-based insurance scores focus only on your credit-related behaviors, not personal details or other financial factors. In fact, both federal law and Tennessee state law bar insurance scoring models from using certain information. Here are things not included in your insurance score calculation:

• Income or Salary: How much money you make is not part of your credit report and does not factor into your insurance score​. A high or low income does not directly affect your premiums (though indirectly, people with higher incomes might have better credit – but the score doesn’t see your actual income).

• Occupation and Employment History: Whether you’re a doctor, teacher, mechanic, or unemployed, your job status is not used in the insurance credit score​. Insurers don’t plug in your employment or length of employment into the credit scoring model. (They may ask for your job for other underwriting reasons, but it’s not part of the credit score.)
  
  Tip: Many carriers who do not use insurance scores will use your occupation as a rating factor.

• Marital Status: While insurers do note if you’re married or single for other rating factors, marital status is not considered in the credit-based score itself​. The score doesn’t get a boost for being married nor a penalty for being single. (Tennessee law also separately prevents unfair discrimination by marital status in insurance.)

• Age: Your age is not used in computing a credit-based insurance score​. Credit bureaus do not provide your age to scoring models. (However, note that age is used by insurers as a separate factor for auto insurance – but that’s outside of the credit score component.)

• Race, Ethnicity, Religion, or National Origin: These personal characteristics are never included – not in your credit report and not in the insurance score​. By law, scoring models cannot use any data that would be a proxy for race or other protected classes. Tennessee explicitly prohibits using “ethnic group, religion, nationality” and similar traits in insurance scoring.

• Address or Neighborhood: The score doesn’t consider your specific address or ZIP code​. (Insurers do use ZIP code in underwriting for risk factors like crime or weather – but again, that’s separate from the credit score itself. The credit-based score isn’t higher or lower because of where you live.)

• Interest Rates on Loans: The interest rate you’re being charged on a credit card or loan is not part of the score. For example, if one person has a car loan at 5% and another at 10%, that difference doesn’t directly influence their insurance scores. It’s the payment history on the loan, not the interest rate, that matters.

• Certain Credit Inquiries: As discussed earlier, inquiries you didn’t initiate (like promotional pre-approved offers) or inquiries for insurance purposes, employment, or account reviews do not count against your insurance score​. Only hard inquiries for new credit that you initiated might have an effect – and even then they are considered in a limited way.

• Family Obligations: Things like child support payments or rental agreements per se aren’t included. Only if a financial obligation shows up as a debt or collection on your credit report would it indirectly factor in. Routine family support or rent payments themselves aren’t reported to credit bureaus (unless you default), so they’re not scoring criteria.

• Any Public Demographic Info: In summary, anything that falls under personal demographics or “life details” – such as your education level, marital status, income, gender, etc. – is never used in calculating the credit-based insurance score​. The score is strictly driven by your credit behavior, not who you are.

By law, Tennessee ensures that credit-based scoring remains focused only on credit history. This means you don’t have to worry that unrelated personal factors (like your job or marital status) will mysteriously raise your rates. They won’t. If an insurer is using a credit score to set your rate, you can be confident it’s only looking at legitimate credit report items and nothing more.

Conclusion

For savvy insurance shoppers in Tennessee, understanding how credit influences your insurance rates can give you an edge. Your credit-based insurance score is an important factor for personal lines policies – it’s basically the insurance industry’s way of using your financial habits as a predictor of insurance risk. A strong credit history (on-time payments, low debt, responsible use of credit) typically translates into a better insurance score and lower premiums​. Conversely, credit troubles can cost you, so it pays (literally!) to mind your credit.

However, remember that you have control over this factor. By managing your credit wisely – and knowing your rights under Tennessee law – you can improve your insurance pricing over time. Always pay bills promptly, keep debts in check, and check your credit reports regularly for accuracy​. If you’re currently being charged high rates due to a poor credit history, take heart that positive changes will be recognized at future renewals. And while you work on it, don’t hesitate to leverage Tennessee’s consumer protections: ask about exceptions for one-time hardships, and shop around with different insurers if needed (insurers vary in how much emphasis they place on credit).

In the end, credit is just one slice of the insurance pricing pie. Safe driving, maintaining your home well, avoiding claims, and choosing appropriate coverages all factor in, too. But credit is a slice that’s within your ability to improve regardless of how many miles you drive or how old your house is. Use this knowledge to your advantage. With diligent credit habits and awareness of how insurers use credit, you can secure better insurance rates and ensure you’re not overpaying in Tennessee’s insurance market. Happy insurance shopping – and keep that credit score shining!