Can Credit History Affect My Arkansas Auto Insurance Premiums?
Yes, state regulations permit Arkansas car insurance providers to take credit history into account to help determine whether to cover an individual and how much to charge him or her for coverage. But not all car insurers in the state will use credit, and in the vast majority of cases, the practice has had either no effect or a positive effect on premiums.
The minority of Arkansas drivers who do end up paying more for a policy because of bad credit should know that they can get re-rated when they believe their credit has improved. These re-ratings are limited to once per year and must be initiated by a written request from the policyholder.
Credit info is used by many insurers across the country because it has proved to be an effective predictor of how many claims an individual will file, how large those claims will be, whether the policyholder will opt for month-to-month policies and whether he or she will let coverage lapse.
Credit Scores Have Positive or Neutral Effect for Most Arkansans
In 2010, policyholders' credit histories were used in determining the prices of approximately 2.1 million Arkansas auto insurance policies.
The use of credit had a negative effect (meaning it increased premiums) in only about 13 percent of those cases. It led to a premium decrease in a little more than 45 percent of them. There was a neutral effect in 42 percent of the cases.
This information is available because in 2003 the state Legislature passed a bill imposing new restrictions on how insurers in the state use credit info, and the bill also required regulators to provide an annual report on how the practice impacts premiums for personal lines.
According to the latest report, about two-thirds of the state's personal lines insurers used credit info to help determine coverage prices.
Components of a Credit-Based ‘Insurance Score'
Coverage providers do not simply use scores provided by credit reporting agencies, and they all use unique formulas to calculate what's known as an insurance score.
According to state regulators, the following are common components used to calculate the scores:
- Public records like foreclosures, liens and bankruptcy
- Length of credit history
- Payment history
- Number of credit inquiries
- Number of open lines of credit
- Types of credit used
- Outstanding debt
Arkansas insurers are subject to certain restrictions on the types of information they use when determining a score.
They cannot use a score that factors in income, gender, address, ZIP code, ethnic group, religion, marital status or nationality.
In addition, insurers cannot deny, cancel or non-renew coverage solely because of credit status.