Tools and Education


Fair Isaac Credit-Based Insurance Scores -
Key Information Category Impact

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I. Payment History (40% impact on a score)

Whether past credit accounts were paid on time or not relates to insurance loss potential. However, late payments are not an automatic "score-killer." An overall good credit picture can outweigh one or two instances of late credit card payments. By the same token, having no late payments on a credit report doesn't mean a "perfect score" will be generated. Some 60-65% of credit reports show no late payments at all ? payment history is just one piece of information used in calculating a score.

With minor exceptions as required by some state laws, a Fair Isaac credit-based insurance score takes into account:

  • Payment information on many types of accounts. These will include credit cards (such as Visa, MasterCard, American Express and Discover), retail accounts (credit from stores, such as department store credit cards), installment loans (loans with regular payments, such as car loans), finance company accounts and mortgage loans.
  • Public record and collection items. Reports of events such as bankruptcies, judgments, suits, liens, wage attachments and collection items. These are considered quite serious, although older items will count less than more recent ones.
  • Details on late or missed payments and public record and collection items. Specifically, how late they were, how much was owed, how recently they occurred and how many there are. A 60-day late payment is not as risky as a 90-day late payment, in and of itself. But recency and frequency count too. A 60-day late payment made just a month ago will count more than a 90-day late payment from five years ago. Note that closing an account with a previously missed payment does not make the late payment disappear from the credit report.
  • How many accounts show no late payments. A good track record on most credit accounts will increase a score.

II. Amounts Owed (30% impact on a score)

Having credit accounts and owing money on them do not always equate to a high-risk borrower with a low score. However, owing a great deal of money on many accounts can indicate that a person is overextended, and is more likely to make some payments late or not at all. Part of the science of scoring is determining how much is too much for a given credit profile.

With minor exceptions as required by some state laws, a Fair Isaac credit-based insurance score takes into account:

  • The amount owed on all accounts. Note that even if credit cards are paid off in full every month, a credit report may still show balances on those cards. The total balance on the last statement is generally the amount that will show in a credit report.
  • The amount owed on all accounts, and on different types of accounts. In addition to the overall amount owed, the score considers the amount owed on specific types of accounts, such as credit cards and installment loans.
  • Whether a balance is showing on certain types of accounts. In some cases, having a very small balance without missing a payment shows that credit is being managed responsibly, and may be slightly better than no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not generally raise a score.
  • How many accounts have balances. A large number can indicate higher level of financial obligation.
  • How much of the total credit line is being used on credit cards and other "revolving credit" accounts. Someone closer to "maxing out" on many credit cards may have high financial obligation and this has been found to correlate with more frequent or higher insurance losses.
  • How much of installment loan accounts are still owed, compared with the original loan amounts. For example, if $10,000 was borrowed to buy a car and $2,000 was paid back, more than 80% of the original loan is still outstanding, including interest. Paying down installment loans is a good sign of managing financial obligations.

III. Length of Credit History (15% impact on a score)

In general, a longer credit history will increase a score. However, even people who have not been using credit long may get high scores, depending on what the rest of the credit report looks like.

With minor exceptions as required by some state laws, a Fair Isaac credit-based insurance score takes into account:

  • How long credit accounts have been established, in general. The score considers both the age of the oldest account and an average age of all accounts.
  • How long specific credit accounts have been established.
  • How long it has been since certain accounts were used.

A Fair Isaac credit-based insurance score does not consider:

  • Ethnicity, religion, gender, familial status, national origin, age, or marital status.
  • Your salary, occupation, title, employer, date employed or employment.
  • Where you live.
  • Any interest rate being charged on a particular credit card of other account.
  • Any items reported as child/family support obligations or rental agreements.
  • Certain types of inquiries (requests for your credit report). The scoring model does not count "consumer disclosure" inquiries -- requests you have made for your credit report in order to check it. It also does not count "promotional" inquiries -- requests made by lenders in order to make you a pre-approved credit offer, or "administrative" inquiries -- requests made by lenders to review your account with them. Finally, requests that are marked as coming from either employers or insurers are also not considered by Fair Isaac credit-based insurance scores.
  • Any information not found in your credit report.
  • Any information that is not proven to be predictive of future insurance losses.

IV. New Credit (10% impact on score)

People tend to have more credit today and to shop for credit via the Internet and other channels more frequently than ever. Fair Isaac credit-based insurance scores reflect this fact. However, research has shown that opening several credit accounts in a short period of time, increasing financial obligation, especially for people who do not have a long-established credit history, corresponds to higher or more frequent insurance losses. This is also true of multiple requests for credit, as indicated by "inquiries" to the credit reporting agencies (an inquiry is a request by a lender to get a copy of a credit report).

The Fair Isaac credit-based insurance scores distinguish between searching for many new credit accounts and rate shopping, which is generally not associated with higher risk. In part, this is handled by treating a grouping of inquiries, which probably represents a search for the best rate on a single loan, as though it was a single inquiry.

With minor exceptions as required by some state laws, a Fair Isaac credit-based insurance score takes into account:

  • How many new accounts appear. The score looks at how many new accounts there are by type of account (for example, how many newly opened credit cards). It also may look at how many of the total number of accounts are new.
  • How long it has been since a new account was opened. Again, the score looks at this by type of account.
  • How many recent requests for credit, as indicated by inquiries to the credit reporting agencies. Inquiries remain on your credit report for two years, although Fair Isaac credit-based insurance scores only consider inquiries from the last 12 months. Note that if a consumer orders his or her credit report from a credit reporting agency -- such as to check for accuracy, which is a good idea -- the score does not count this inquiry as it is not an indication of seeking new credit. See section III for other inquiries excluded from consideration by Fair Isaac credit-based insurance scores.
  • Length of time since credit report inquiries were made by lenders.
  • Whether there is a good recent credit history, following past payment problems. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a score over time.

V. Types of Credit in Use (5% impact on score)

A score will consider the mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts not intended to be used. The credit mix usually won't be a key factor in determining a score ? but it will be more important if a credit report does not have a lot of other information on which to base a score.

With minor exceptions as required by some state laws, a Fair Isaac credit-based insurance score takes into account:

What kinds of credit accounts and how many of each. A score also looks at the total number of accounts in a credit report. How many is too many will vary based on differing credit profiles.

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