Credit-based insurance scores, like credit scores, are numerical summaries of
consumers’ credit histories. Credit-based insurance scores typically are calculated using
information about past delinquencies or information on the public record (e.g.,
bankruptcies); debt ratios (i.e., how close a consumer is to his or her credit limit);
evidence of seeking new credit (e.g., inquiries and new accounts); the length and age of
credit history; and the use of certain types of credit (e.g., automobile loans). Insurance
companies do not use credit-based insurance scores to predict payment behavior, such as
whether premiums will be paid. Rather, they use scores as a factor when estimating the
number or total cost of insurance claims that prospective customers (or customers
renewing their policies) are likely to file.

Credit-based insurance scores evolved from traditional credit scores, and
insurance companies began to use insurance scores in the mid-1990s. Since that time,
their use has grown very rapidly. Today, all major automobile insurance companies use
credit-based insurance scores in some capacity. Insurers use these scores to assign
consumers to risk pools and to determine the premiums that they pay.

Insurance companies argue that credit-based insurance scores assist them in
evaluating insurance risk more accurately, thereby helping them charge individual
consumers premiums that conform more closely to the insurance risk they actually pose.
Others criticize credit-based insurance scores on the grounds that there is no persuasive
reason that a consumer’s credit history should help predict insurance risk. Moreover,
others contend that the use of these scores results in low-income consumers and members
of minority groups paying higher premiums than other consumers.

So what insurance companies correlate that if you are not financially responsible, they assume that you don’t drive responsibly either and raise the amount you pay for your policy.

Not all states allow for insurance companies to base your policy rate  on your credit score but the state of Michigan does. If you don’t agree with this,  contact your representative in Lansing.