Will Opening Credit Cards Start to Have a Bigger Effect on Insurance Premiums?

I learned this past week that my homeowners insurance will be factoring in not just credit score in pricing premiums but specifically the frequency of new credit account opening.

Coincidentally I heard from reader Kim A. in Florida that her insurance company is doing the same thing,

Starting next month, the company is going to adjust (translation: raise) rates based upon the policyholder’s credit score.

Clearly stated in the notice is that the more credit cards are applied for, and/or opened by the policyholder, the higher the Homeowner’s Insurance rates will be.

Also, the company will be taking into account the frequency with which the policyholder applies for and/or obtains a new credit card.

We have different insurance companies. And while credit scores (as well as credit-based insurance scores) as a factor in insurability isn’t new, and in setting rates as well, the description of using the number of new credit accounts entirely apart from credit score as a determinant of rates was new to me.

So I guess I have something new to understand: how many is too many for my insurance company, what that will do specifically to rates, and whether that will mean other companies offer cheaper insurance as a result? Because just what I wanted to pay more attention to is my homeowners insurance policy.

If you’ve already read up on this issue or dealt with it, please hit the comments. Could it be that both my insurance company and Kim’s were imprecise, they really were just talking about credit scores (and opening card accounts influences score) or is this actually a new and separate rate factor as both companies seemed to suggest?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Trying to understand why they would even care about this? I get that a higher credit score could potentially indicate that you are a more responsible/financially stable person, but what does opening a higher than normal amount of new accounts indicate as it pertains to your insurability?

  2. My insurance company started doing this 3 years ago by using VantageScore methodology to calculate rates. VS uses a different formula to calculate a number and mine was “the same as a teenage girl with no credit” according to agent. I searched for companies that use FICO to calculate rates and saved 50%. Link to how Vantage differs from FICO.

    http://www.investopedia.com/articles/personal-finance/070913/how-your-vantagescore-credit-report-calculated.asp

  3. I first got dinged about 21 months ago.
    Had completed an Apporama for both my wife and self. All 8 apps approved. Insurance bill from Progressive arrived 6 weeks later and policy increases by nearly $200 per 6 months.
    The reason was very clearly stated on their billing. I was carrying too many CC’s and to many recent openings. The additional cards had increased credit accessibility to too much funding availability.

  4. That right after a natural disaster you are an indicator of other expensive risks such as loss of job, increased expenses etc.?

    Presumably this does not apply to the general public?

  5. Insurance varies by state, and some states are more permissive than others regarding what rating factors are allowed. In MD, none of the insurance rate filings I’ve seen propose # of credit cards separately from credit score as a rateable factor. Credit score is inversely correlated to claim incidence (at a basic level, more financially stable individuals are more likely to pay out of pocket for minor losses). Credit score is also an excellent proxy for things like ethnicity that aren’t actually allowed in policy rating. For auto and liability, credit score is more useful; homeowners is still primarily driven by location. I doubt very much that your insurance companies actually meant to use credit card openings as its own rating factor.

  6. I live in Michigan and have Farm Bureau. Two years ago they increased my premium and the reason clearly stated that it was because I had more credit cards, regardless of my credit score.

  7. Last year my insurance company apparently started basing it’s premiums on outside financial information and I only found out when my home insurance jumped 20% and I protested. I have never filed a claim with them in 24 years and my credit score is above 800. After my protest they took a closer look and lowered my bill below the previous level and this year it dropped bit farther

  8. I moved to Kansas 10 years ago and was immediately hit with insurance surcharge for too many credit inquiries. My complaint to the Kansas insurance commissioner was rebuffed. The insurance commission has accepted the industry standard that credit inquiries are directly reflected in accident statistics..

  9. Wow, I’ve found a reason for starting an insurance company.
    As to too many credit card, poop on that; My insurance company had the audacity to double my homeowners insurance premium for 2 at-fault claims totalling $400,000.

  10. Car insurance too. I was going to move my 3 cars from State Farm to Farmers in 2016 but didn’t as the rates were somewhat similar to what I already paid. Checked in again in 2017, and the total for 3 cars for 6 months jumped by almost $400. Same drivers, same high credit score. Agent said that this is a new stupid policy of Farmers, that they are losing a lot of business because of it, and that this is not something agents can waive or get around, it is hard-coded into the system. However, it doesn’t appear that either State Farm or Allstate use this new set-up.

  11. Insurance companies I have looked into use LexisNexis A LOT.

    LN makes a propietary insurance credit score that dings you for everything, but specifically INQUIRIES and AAOA

    So I am getting crushed on insurance rates.

    So basically I am giving up churning for 2 years to see if it makes a difference.

    The score rewards you though for having a gas card like CITGO or whatever.

  12. The Lexus Nexus site shows the types of things that can affect your scores, and actually says that for gas cards, 0 is better. FYI, you can order your report once a year for free, but they don’t make it easy. Still, your advice is a good warning, and I’m laying off for a while too. I screwed up big time by cancelling a card I had for a long time just to save $59. Hopefully they only affect rates when you are applying, not renewing. Because every time I price shop, I can’t come close to GEICO with any other companies, so I should be staying with them a while.

  13. Timely for me. A few days ago I found that my progressive policy jumped by $92 per 6 months after dropping nearly every year for the past 10 years. I’m 38, live in WA and have no incidents to justify the change.

    I called to inquire and was told that $71 of the increase is due credit factors:
    * time since most recent credit card opening: 15 days.
    * number of open and closed accounts: 20 from Experian going back to 1998. They claim the average customer has 7, which I find hard to believe. I have around 7 active credit cards and have never carried a balance from month to month.

    My credit score is around 820. The only “non-excellent” factors on my credit score report are average age of credit (~5 years) and credit inquires (~3).

    I pointed out how poor a measure the “time since most recent account opening” was and was given a shrug. On my TODO list is to shop around and see if I can do better.

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