It’s not just fender benders or speeding tickets that determine your auto insurance premiums. How you manage your debt also makes a difference. That’s why recent changes to credit reports last month may lower rates for a handful of drivers. Auto insurers use a special insurance score calculated from a person’s credit file to predict that person’s likelihood of filing a claim. The higher the likelihood of a claim, the more risk of loss to the insurer. An FTC study in 2007 confirmed the reliability of scores in predicting claim risk and found, on average, that higher-risk consumers paid higher premiums and lower-risk ones paid lower premiums.

California, Massachusetts and Hawaii still prohibit the use of the scores due to concerns over credit report accuracy and possible discrimination. But in other states, about 95% of auto insurers use these scores. FICO and LexisNexis are among the largest providers of these scores.

The score is combined with many other factors, like driving record and type of car, to help insurers come up with a premium that matches your risk profile. Having poor credit can mean paying almost double in auto insurance premiums compared with a driver who has excellent credit, according to a ValuePenguin study in March 2016. Other studies have shown similar disparities in premiums based on credit history.

What’s in an insurance score?

Credit scores and insurance scores often consider the same factors, yet weight them differently. For instance, payment history makes up 35% of FICO’s credit score, but contributes 40% to its insurance score. Credit mix (the combination of credit sources you have) has a smaller impact on insurance scores (5%) than on FICO credit scores (10%). The amounts owed, the length of credit history and how much new credit a consumer has recently opened all contribute the same amount to FICO insurance and credit scores.

LexisNexis uses outstanding debt, payment patterns, length of credit history, available credit, late payments, new applications for credit, type of credit used, past-due amounts and public records in calculating its insurance score.

How credit report changes may affect insurance scores

In July, the three main credit bureaus—Experian, Equifax and TransUnion—removed certain public records from credit reports that didn’t meet their new verification standards. All new data must meet the standards before being added. The result? Half of tax liens and nearly all civil judgments were removed from consumers’ credit reports.

FICO found that the removal had a modest to no impact on its insurance score distributions, says Lamont Boyd, insurance industry director at FICO. Consumers with lower insurance scores may see the biggest changes because their credit files were more likely to contain tax liens or civil judgments, he said.

LexisNexis credit-based insurance scores didn’t change after the elimination of those public records in credit bureau files, according to a company spokeswoman. That’s because LexisNexis doesn’t depend on public record data found in credit reports. It has its own public record data that it uses in calculating insurance scores.

What a small improvement could mean, dollar-wise

If you’re one of the few whose insurance score was affected by the credit report changes, it’s likely it’s for the better. Even a small boost in your score could theoretically be enough to result in moderately better auto insurance rate. For instance, ValuePenguin’s 2016 study of premiums in Salt Lake City and New York City found that moving up just one credit tier could mean as much as 14% to 20% discount on premiums. Depending on your annual premium, that could be hundreds to even a thousand dollars in savings.

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