Unbeknownst to many consumers, credit scores can play a significant role in determining personal lines insurance rates. Especially in home insurance, insurers will often use credit-based insurance (CBI) scores when setting rates, in addition to other factors including location, type of home, claims history, and more.

Similar to a credit score, CBI scores are developed by FICO and consider a range of credit characteristics, says the Insurance Information Institute (I.I.I). Outstanding debt, credit history, payment history, types of credit, and other factors are considered, each with an assigned weight. Once calculated together, a lower CBI score translates to a higher risk for the insurer — and usually a higher premium for the consumer.

"Insurance companies often use insurance scores because actuarial studies suggest that how a person manages his or her financial affairs, which is what these scores indicate, is a good predictor of insurance claims," says the I.I.I. "Statistically, people with a poor insurance score are more likely to file a claim. This allows carriers to better match insurance premiums with the risk that an individual insured might pose, helping prevent better risks from subsidizing bad risks."