FICO score, created by the Fair Isaac Corporation, has been used by most financial service organizations to assess the credit risk of consumers. FICO has also created credit-based insurance scores that are used by insurers to determine insurance rates for homeowners while underwriting the policy. According to FICO, 95% of insurers use insurance scores in deciding the insurance rates. With the average FICO credit score reaching an all-time high of 706, vHomeInsurance took the initiative to analyze the financial market trends and understand the parameters used to calculate credit score and insurance score.
The average FICO credit score across the country has seen an upward trend since it sank to 686 in the year 2009. From the year 2013, the average credit score has not shown any signs of a downward trend. Year after year, it has scaled new heights, with 700 in the year 2017, 704 in the year 2018, 706 in the year 2019. When it comes to states, California and Nevada had the highest gain in average FICO credit score with an increase of 26 points in the duration of 2009 to 2019. California and Nevada have average FICO credit scores of 716 and 619, respectively.
The average FICO credit score rises with an increase in age. The age group 18-49 saw an increase of 5 points in average credit score, while the age group 50+ saw an increase of 4 points. The age group 18-29 registered the lowest average credit score with 659, while the age group 60+ has the highest credit score with 747 points.
While credit scores and insurance scores use credit reports for evaluation, it is important to note that they are very distinct. As opposed to credit score,which has a person’s income as its prime focus, an insurance score focuses on how well a person manages their money. However, it is safe to say that higher insurance scores can be associated with positive credit scores.
Insurance scores are calculated by considering the payment history, outside debt, credit history length, pursuit of new credit, and credit mix of homeowners. Other factors, such as age, gender, income, occupation, and marital status, are excluded in the calculation of insurance scores. Under federal law, if an insurer rejects the policy citing the insurance score of the homeowner, then the insurance company holds the responsibility to inform that the credit report was used as an evaluation criterion and make the data available at free of cost. Moreover, Hawaii and Maryland prohibit insurers from using insurance scores in deciding home insurance rates.