What is an insurance score?

Key takeaways

• A credit-based insurance score is important because insurance companies use it to determine the likelihood that you will file an insurance claim, which impacts your auto insurance premium in most states

• You may be able to estimate your insurance score by considering your current credit score as well as your outstanding debt obligations. For a more accurate score, you may be able to request your insurance score from your insurance company or LexisNexis.

• You may be able to improve your insurance score by paying bills on time and keeping your credit utilization ratio low.

Insurance companies use many different factors to determine your premium. These factors can vary depending on the state you live in, but in most areas, your carrier may use your age, gender, ZIP code and credit-based insurance score to calculate your premium. Whether you are a new insurance shopper or want to switch providers for a better deal, your credit-based insurance score can impact the price you pay for your policy in most states. Having a basic understanding of what goes into your insurance score and how it is utilized may help you save money on your auto and homeowners insurance.

What is an insurance score?

According to the Insurance Information Institute, insurance scores are confidential ratings calculated by insurance companies primarily by using data from your credit history. This score is used to help determine the likelihood that you will make an insurance claim in the future for both home and auto coverage in states where it is allowed.

Statistically speaking, those with higher credit scores are less likely to file a claim with their insurance company. As such, insurance companies use information from major credit rating bureaus to create their own rating system, akin to a credit score for insurance. Drivers and homeowners with higher credit-based insurance scores typically pay more for coverage.

• Not all states allow the use of insurance scores as a factor for determining insurance rates.

• The states that prohibit or restrict credit from being used as a car insurance rating factor are California, Hawaii, Massachusetts and Michigan.

• The states that prohibit credit from being used for homeowners insurance rates are California, Massachusetts and Maryland.

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Why is an insurance score important?

Insurance scores play a significant role in calculating the cost of your insurance premiums, according to the Insurance Information Institute (Triple-I). Insurance companies assess how much risk they incur to provide coverage to a customer. This expected cost, among other factors, is used to determine how much the company should charge a customer in premiums to avoid losing money.

Insurance and credit score data

• The average credit score is 716. (Average credit scores by state)

• 47 percent of credit cardholders carry debt from month to month. (Bankrate credit card debt survey)

• Drivers under 25 pay the most for auto insurance and 52 percent of them carry credit card debt from month-to-month. (Bankrate auto insurance rates by age and Bankrate credit card debt survey)

• The baby boomer generation pays the least for auto insurance and they are also the least likely to have credit card debt with 41 percent carrying a balance month-to-month. (Bankrate auto insurance rates by age and Bankrate credit card debt survey)

How is an insurance score calculated?

Insurers use several factors to determine your insurance score. Many of these factors overlap with factors used to determine your credit score. Although some states require insurance companies to make their insurance scoring methods public, not all do. Some key factors that may influence your insurance score are your previous credit performance, outstanding debt, credit history length and pursuit of new credit. Exact factors that impact insurance scores will depend on your carrier’s underwriting policies, the state you live in and any third-party companies the insurer works with to source credit information.

What is a good insurance score?

Like credit scores, insurance scores improve as they increase. According to LexisNexis, a risk-focused data analytics company, insurance scores range from 200 to 997 in its scoring metric. Scores higher than 775 are considered good.

Insurance score chart

How to improve your insurance score

Thankfully, there are many ways to potentially improve your insurance score. For the most part, strategies and techniques for improving credit scores will also increase your credit-based insurance score. The primary approach is to treat your credit and bills with as much financial responsibility as you can.

Here are some strategies that might help improve your credit-based insurance score:

• Pay bills on time: Avoid late payments and missed payments. If you can afford to pay the full amount you owe each month, rather than just the minimum payment, it can also help keep your credit utilization ratio low.

• Keep credit utilization low: Credit utilization refers to the amount of your available credit you use. A good benchmark figure is to keep this number below 30 percent of all your available credit.

• Pay down debt quickly: If you have credit card debt, a car loan or other outstanding debt, you may want to make it a priority to pay it down as quickly as possible.

To see your credit score and track when and how much it is improving, you can go to www.annualcreditreport.com for free copies of your credit reports. 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. Because of the pandemic, you are allowed to access your credit reports weekly through this site instead of annually, as had been the process previously. This will remain in effect through December 2023.

• Shopping around may help you find the best rates, even if your credit history is less than perfect.

• Making on-time payments with your existing credit obligations may help improve your credit score and, in turn, your insurance score.

• Review any available discounts your insurer offers to make sure that you are taking advantage of any for which you are eligible.

Frequently asked questions

• • Does an insurance score affect all policy types?

    In most states, insurance scores are used to determine your auto and home premiums. However, some states have laws limiting whether credit history can be used to calculate premiums. Hawaii and Michigan prohibit the use of credit history in auto insurance rating, while Maryland prohibits its use in home insurance rating. California and Massachusetts prohibit the use of credit history in both auto and home insurance rating.

  • What makes your insurance score decrease?

    Anything that makes your credit score worse will likely negatively impact your insurance score. Outstanding debt, late payments, excessive credit lines and a high credit utilization rate may all negatively impact your insurance score.

  • How is my insurance score different from my credit score?

    Your insurance score is calculated using factors of your credit history to determine how likely you may be to file a claim. Your credit score is calculated using many of the same factors, but it’s used 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. Please note that all insurers engage proprietary underwriting guidelines, so how they use insurance scores to determine your rate can vary.

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

    Typically, your insurance score is the same whether the product is home or auto insurance. However, this can vary depending on your insurer’s underwriting process and whether the same company provides your home and auto insurance. It can also depend on what state you reside in and if there are regulations prohibiting credit usage as a rating factor.

  • Why is my insurance score so low?

    A low insurance score may be the result of several factors. As your credit-based insurance score is based on most of the same factors as your credit score, this is a good place to start. If you have a history of making late payments on your consumer debt, it can impact your credit rating. Defaulting on a loan or declaring bankruptcy can also lead to a low credit score, although after a certain number of years, it may fall off your credit report. You may also have a lower insurance score if you frequently max out your credit cards or have a credit utilization that is above 30 percent. If you’re not sure why your credit score is low, requesting an official credit report or consulting a financial advisor may be a wise next move.