What Is an Insurance Score?

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Many of us are familiar with credit scores, but did you know there’s another score generated from your credit report? Credit-based insurance scores, like credit scores, are calculated based on information in credit reports.

Credit scores determine the likelihood of credit delinquency. The lower your credit score, the more likely you are to miss a payment. With insurance scores, the lower your auto insurance score or home insurance score, the more likely you are to file a claim. This score is what insurance companies use to determine how risky someone is likely to be.

These scores play a significant role in how much you pay for insurance. Having a basic understanding of what goes into your insurance score and how it is utilized can help you to save money on your home and auto insurance by reducing your risk as a customer.

Why is an insurance score important?

Insurance scores play a significant role in calculating the cost of your insurance premiums. Insurance companies try to predict how much money it will cost to provide coverage to a customer. This expected cost, amongst other factors, is used to determine how much the company should charge a customer in premiums to avoid losing money.

The vast majority of insurers in the United States are private businesses and cannot survive without making a profit. Without the use of home insurance scores, companies would have less accuracy in predicting a customer’s cost. To offset this increased margin of error, companies would likely need to raise the rates on all customers.

How is an insurance score calculated?

Insurance companies use several factors to determine your insurance score. Everything from payment history to outstanding debt to credit mix is calculated into your score. Each of these variables can be obtained from your credit report. Below are the most critical factors, as listed by the NAIC. The percentage next to each variable is how much of your insurance score is determined by that variable.

  • Payment history (40%): Everything from missed payments to punctual payments is the primary factor used in insurance and credit scores.
  • Outstanding debt (30%): How much money you owe at the time of the report. More substantial debt is seen as a higher risk.
  • Credit history length (15%): The amount of time you’ve had a line of credit, whether credit cards, loans, mortgages or another format.
  • Pursuit of new credit (10%): New applications for new lines of credit can imply increased risk. Even if you are handling your current credit limits and debts well, adding another line of credit could destabilize that.
  • Credit mix (5%): While this has the smallest impact, the variety and number of credit lines you have can affect your insurance score.

What is a good insurance score?

Insurance scores range from good to bad. The higher your insurance score, the better it is. According to Progressive, insurance scores range from 200 to 997, with everything below 500 considered a poor score, and everything from 776 to 997 is considered a good score.

The lower your insurance score, the more of a risk you are to insurance companies. The higher your insurance score, the less likely you are to make a claim. As a result, higher insurance credit scores will usually lead to lower rates on your policy, while lower scores will contribute to higher rates.

So, what is a good insurance score? Anything over 775.

How to improve your insurance score

Thankfully, there are many ways to improve your insurance score. For the most part, strategies and techniques for improving credit scores will also increase your auto insurance score. The primary approach is to treat your credit and bills with as much financial responsibility as you can. This means paying bills on time, keeping your credit utilization rate at or below 30%, quickly paying down debt and meeting financial agreements and contracts.

To see your credit score and to track when and by how much it is improving, you can go to www.annualcreditreport.com for one free insurance credit score report every year. When you use this link, you will be given copies of your credit report from each of the three primary credit bureaus. If your credit score is improving, it’s likely your insurance score is as well.

Frequently asked questions

Does an insurance score affect all policy types?

In most states, the answer is yes. However, some states have laws that limit which types of insurance can use credit reports to calculate premiums. For example, some states limit the use of an insurance score to auto and home insurance, while other states allow your score to be used with all insurance policies.

What makes your insurance score go down?

Anything that makes your credit score worse will make your insurance score go down. Being late on your bills and debt payments, taking out excessive lines and types of credit and maintaining a high credit utilization rate can reduce (worsen) your home insurance score.

Do all states use an insurance score?

To varying degrees, yes. Some states, like Hawaii, California and Massachusetts, ban the use of these auto insurance scores. Most states allow the use of these scores, and nearly every property insurance policy in the country will use some form of an insurance score.

How is my insurance score different from my credit score?

Your insurance score is calculated from your credit report to determine how expensive you are to insure. Your credit score is calculated from the same report but to determine how likely you are to go delinquent on a debt. Each uses overlapping variables, but the formula, outcome, and purpose are all different.

Is my home insurance score the same as my auto insurance score?

Often, yes, it will be. However, this can vary depending on who your insurer is and whether the same company provides your home and auto insurance.