Auto insurers have long used rating factors such as age, sex, marital status, ZIP code and accident history to set their premiums. By determining how much each factor affects frequency and size of payouts, insurers create a formula for calculating how much you’ll pay for coverage.

In the 1990s, several insurers worked with Fair Isaac – the Minneapolis, Minn.-based company that invented credit scoring – to test a theory that credit scores might predict homeowners- and auto-insurance claims losses. Statistical analysis of archived data from more than a million credit files found that 30 of 100 or so items in the reports correlated with payouts. That finding led to the creation of homeowners- and auto-insurance scores: numbers in widespread use today that are as important in determining your annual premium as your driving record and the neighborhood where you live.

Scores’ effects debatable

How many policyholders benefit as a result of credit-based insurance scoring and how many lose is a matter of dispute. Fair Isaac claims that two-thirds to three-quarters of customers get better premiums because of credit-based scores. A study by the Texas Department of Insurance in 2004, however, found that half paid more and half paid less than they would have without scoring.

Among insurers we interviewed, only the Farmers Insurance Group told us how scoring affected premiums for its customers: an $80 annual reduction, on average, for the 58 percent who saved, and a $109 increase for the rest.

Yet scoring methods vary from company to company, and a consumer can’t predict whether certain credit behavior will result in a low premium or a high one. For example: The scoring model used by ChoicePoint, an Alpharetta, Ga., provider of insurance scores, penalizes policyholders if they have no major credit cards. The Fair Isaac model is OK with two major cards, but frowns on none, one or three or more. Progressive Auto Pro’s Financial Responsibility Score, meanwhile, doesn’t consider major credit cards at all in its calculations.

But Progressive’s model does look at consumer-initiated credit inquiries and will give premium-boosting black marks to a customer whose credit-bureau information says he opened three credit-card accounts within the previous year – including one credit card in the previous four months – and then made two or more additional loan inquiries without accepting the credit. The company also will bite you for having a credit-card balance higher than 40 percent of your limit. Neither situation is indicative of grave financial problems.

How to increase a score

Because scoring models are all over the road, you should secure quotes from several insurers to avoid getting clobbered when shopping for coverage. At the same time, you can increase your chances of a good insurance score by taking the following steps:

¢ Use credit that insurers favor. Scoring models prefer oil-company credit cards. They also like national bank credit cards such as American Express, Discover, MasterCard and Visa. Avoid department-store credit cards, credit provided by stores to help move big-ticket items, credit accounts at your local tire dealer, auto-parts store or service station, and finance-company credit.

¢ Pay your bills on time. Consider automatic bill payment from your checking account so that you don’t have to worry about payments getting lost or delayed in the mail.

¢ Ask for exceptions. Insurers may rescore you if your credit has been ruined by circumstances beyond your control. Progressive, for one, says it may consider adverse effects from divorce, job loss or serious medical problems.

¢ You also should monitor your credit reports. You have a right to a free report, once a year, from each of the three credit bureaus: Equifax, Experian, and TransUnion. To find out more, go to www.annualcreditreport.com.