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Credit Where It’s Due

Andrew Forsythe, 3:04 am ET

I RECENTLY STUMBLED on a way to save a significant sum on my home and auto insurance. While I knew that insurance companies use credit scores in setting premiums, I didn’t know about a policy option that could be turned to our advantage.

Our home, auto and umbrella policies are with Safeco, which is part of Liberty Mutual. I don’t know if this option is available with other insurers, although Liberty Mutual has many subsidiaries and I would guess it may be available with them. If and how credit history can be used in setting premiums also varies by state.

Buried in the pile of documents I receive every year with my policies is an innocuous-looking page titled “information about your policy.” It says that Safeco considers my credit history in setting my premiums and that, if I want the insurer to update my credit information, I can mail back the page. It also warns that the review could either raise or lower my premiums.

I never paid much attention to this. I had assumed Safeco was already monitoring my credit history and factoring it into my annual premiums. Also, the language about possibly increasing my premiums gave me pause.

Recently, when I received my annual policies, I called my local agent to grouse about the premium increases. She brought up the credit review forms, asked about my credit score—it hovers around 800—and suggested I send in the forms. She recently had another client who did so and received a premium reduction of several hundred dollars.

I took her advice and mailed in the forms, one for home and one for auto. The option didn’t apply to my umbrella policy. To my happy surprise, a couple of weeks later, I received a 20% reduction on my homeowner’s premium, worth $606, and a 27% cut on my auto premium, or $489, for a total savings of $1,095.

During this process, I had an online chat with a Safeco rep, who explained that the company runs my credit history when the policy is first issued. After that, it’s up to me to request it, which can be done once a year. It dawned on me that I’ve had my Safeco policies for many years, so my credit score must have increased a good bit during that time.

I keep an eye on my credit score with Credit Karma, so I felt comfortable that my score was good before I sent in the forms. Insurance companies use a credit-based insurance score, which is different from a regular credit score, but I figured they were likely similar.

If your insurer offers a credit review, I suggest checking your score right before making the request. Indeed, after paying my now-reduced annual premiums in full using my credit card, I raised my card balance relative to my card’s credit limit—and my credit score dropped 12 points.

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Margaret Fallon
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Pungh0Li0
Pungh0Li0
3 months ago

That practice has been banned in Washington State. A lot of us saw higher premiums this year.

Andrew Forsythe
Andrew Forsythe
3 months ago

Thanks for all the comments. It did strike me as odd that my company (Safeco) doesn’t routinely check credit scores on an annual basis and that you have to ask. I hope readers will continue to post about their experiences with their own insurers.

Paula Karabelias
Paula Karabelias
3 months ago

In the 1990’s when I was an actuary , I was one of the pioneers in the development of credit based insurance score predictive models for underwriting personal auto policies (in states where we were allowed to). At that time we only ordered scores every three years because of the expense. In your state I suspect there is a regulatory reason for rerunning only by request. Likely it is to protect consumers who have been hit by medical debt or job loss where their credit may have taken a hit and the result would be an adverse action at renewal.

Mike Feeney
Mike Feeney
3 months ago

I called my insurance company (AMICA) for my auto & home and they assured me my credit rating is checked every year in determining my rates. No sure how to verify that…wondered what others are finding out when they inquire.

Paula Karabelias
Paula Karabelias
3 months ago
Reply to  Mike Feeney

It depends on what state regulations allow.

Devesh Shah
Devesh Shah
3 months ago

Thank you for this advice. WIill try it out and see if it works with other insurance carriers.

GW
GW
3 months ago

Good advice.

and if you own a Tesla, use Tesla insurance. My insurance broker was shocked when I dropped my policy with no warning. Said “but we got you the least expensive one.”

Nope. Tesla insurance started out 27% less expensive for better coverage and has dropped further since then based on my daily safe driving score which tracks 5 factors including hard braking, aggressive turns, unsafe following.

Last edited 3 months ago by GW
Paula Karabelias
Paula Karabelias
3 months ago
Reply to  GW

Your insurance agent got the least expensive of only carriers they represent . There are other options like direct carriers such as GEICO, or perhaps an agent that represents other carriers. Tesla has experienced sky high loss ratios with their insurance product , but that will probably improve over time . If not, the insurance graveyard is full of companies that thought it was a good idea to start an auto insurance company and then found out otherwise.

Nate Allen
Nate Allen
3 months ago

It is also possible that you triggering the review with your credit score triggers the insurance company to think that you might be shopping around. As Clark Howard always says, the worst thing you can be to an insurance company (or cell phone company, tv provider, etc.) is too loyal. Those who are too loyal to companies are the ones punished by higher prices. It is good to shop around every so often and consider switching or giving your current company the chance to lower their price.

mjflack
mjflack
3 months ago

Andrew, great article. Articles like this, that describe personal experiences, are exactly why I subscribe to Humble Dollar. I contacted my insurer, USAA. They informed me that “So right now it does look like we are considering your credit score”. Oh well, it never hurts to ask.

Ronald Wayne
Ronald Wayne
3 months ago

great information! Need to look into this. Thanks

A Foster
A Foster
3 months ago

We also save a significant amount on our auto insurance by paying a lump sum every six months, rather than being billed monthly.

Rick Thompson
Rick Thompson
3 months ago
Reply to  A Foster

I save even more by making annual premium payments.

John Goodell
John Goodell
3 months ago

This is a really good tip I had never considered.

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