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These would all be very good questions; questions that don't have very good answers.

The effect of credit score ratings on insurance rates has risen over the past few years. Insurance companies claim that poor credit rating is a good indicator of a client being more likely to file a claim. Insurance companies do not necessarily believe that poor credit rating means irresponsibility on the road; however according to their studies, people with the worst credit ratings are forty percent more likely to file a claim than those with spotless credit. It's a fine distinction perhaps, but a relevant one for insurance companies.

It should be noted that the statistical data was derived from studies conducted by the insurance companies. There are no independent studies verifying their claims.

Insurance companies may rely purely on your three digit score obtained from Fair, Isaacs & Co., or they may apply their own underwriting criteria in addition to your credit score, and derive an insurance score. Generally, they don't even look at your credit report, but are more interested in the customer's overall ability to manage credit.

The insurance score is going to be more concerned with how likely it is you will file a claim. While most auto insurance companies do factor in your credit score someway, somehow, significantly fewer use credit data when you renew your policy.

Insurance companies also assert that the current system of using credit scores can benefit some drivers with a bad record if they have good credit rating. Insurance companies are more concerned about whether or not a customer will file a claim as opposed to whether or not they actually damage their car. So a person who might ding his car in multiple places may pay a lower premium if they are deemed less likely to file a claim for those dings.

The University of Texas conducted a study and concluded there is a significant relationship between credit scores and filed insurance claims. Another study done by the Casualty Actuarial Society revealed that people with a bad driving record and good credit have better loss ratios than people with a good driving record but rotten credit. Insurance companies are certain enough of the correlation that they are basing their rates on it, even if they don't understand precisely why such a correlation exists.

Not all insurance companies use credit data, though a fair number of them do. Some states prohibit the use of credit score data for insurance premiums.

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