Your credit report is a record of how you manage your financial obligations and is based on account and payment information provided to consumer reporting agencies (such as TransUnion) by businesses like lenders, banks and utility companies. Scoring models then use categories of this information to calculate a three-digit credit score that provides a snapshot of your credit health to lenders, helping them make lending decisions. Credit scores attempt to predict your creditworthiness — or the likelihood you’ll repay a debt. (For more information about credit scores, please read, “What is a credit score?”)
Insurance scores, in contrast, help determine insurance premiums and are designed to predict insurance losses (as opposed to creditworthiness). Because insurers use credit data differently than a creditor or lender, it is necessary to use different scoring formulas to evaluate credit history for insurance purposes. In addition, just as lenders look at credit differently for mortgages versus auto loans, insurers look at credit differently when evaluating a consumer for an auto, or property, or life insurance policy. Scoring models measure different factors depending on how they are used, and they’re built and tested to be predictive for their particular application. It should be noted that there are many versions of insurance scores as consumer reporting agencies and many insurance companies develop their own models.
It’s important to note that decisions regarding premium calculation and eligibility are made by the insurance company — not consumer reporting agencies, like TransUnion, that furnish the scores. Consumers should contact their insurance carriers directly if they have specific questions about the insurance scoring model their carrier uses.