Insurance Rates And FICO score
Kay has an interesting dilemma about telling her daughter the connection between your FICO score and getting insurance.
QUESTION: Kay’s daughter is a college junior who asked Kay how to establish a credit rating. Kay got an insurance newsletter the other day that says insurance rates are based on your FICO score. If she doesn’t borrow money, could that raise her insurance rates?
ANSWER: My FICO score is zero. I work with companies that don’t use just a FICO score. Most of them do use the credit score when they look at you now. I may have to pay a little bit more in insurance, and that might be the cost of not having debt and being broke my entire life. Insurance companies use the FICO score, and it’s going to come back to roost on them.
The problem with this is that people like me who are debt free and don’t borrow money are excellent insurance risks. The chances of me filing an insurance claim are very slim because I just fix it if it breaks. Are you going to tag me because I don’t borrow money? They’ll get slapped around by this before it’s all over.
There is evidence that suggests people with good credit are good insurance risks because they take care of their cars or have a tendency to have money. But that’s not because they have good credit. Your daughter might pay a little bit more in insurance if she avoids debt, but that doesn’t mean she should run out and get a credit card to establish credit. The only way you can get a high credit bureau score is to borrow money.