Your insurance score (also known as insurance credit score) is based in part on your overall credit rating. This is because historical data reveals that there is a distinct correlation between one’s credit rating and the amount of insurance claims that they file.
What Your Insurance Score Means
The insurance score that you are ultimately given is therefore based on a combination of your credit score and your past insurance claim filing history.
Since more than 90% of insurers use some form of insurance scoring, it can have a big impact on the amount of premium that you pay for your coverage no matter what company your insurance is through. In this regard, a higher insurance credit score will result in you paying a lower amount of premium, and conversely, a lower insurance score will likely result in you being charged a higher amount for coverage.
How is Your Insurance Score Determined?
There are several different companies that create credit-based insurance score reports for insurers to use. FICO looks at five general areas it believes will best determine how you manage risk. This is the breakdown of what it considers and how much the information generally weighs in figuring your credit-based insurance score:
- Payment History (40%) — How well you have made payments, bankruptcies, and collections
- Outstanding Debt (30%) — How much debt you currently have
- Credit History Length (15%) — How long you have had a line of credit
- Pursuit of New Credit (10%) — If you have applied for new lines of credit recently
- Credit Mix (5%) — The types of credit you have (credit card, mortgage, auto loans, etc.)
What is the Insurance Score Range?
A lot of people wonder, What is a good insurance score? The answer is, once your claims filing history and your credit score are obtained by an insurer, they are combined to generate your total insurance score. This number will range between a low of 200 and a high of 997.
- Insurance scores that fall into the range of 770 or higher are typically considered to be very good.
- Conversely, a poor insurance score is considered to be any number below 500.
How to improve your score?
Improving your credit-based insurance score is just like improving your regular credit score. Make payments on time. Pay bills, taxes and fines/fees as agreed. If you are behind on payments, catch up and stay current. Keep balances on credit cards as low as possible & close unused department store credit. Most importantly, request your free report from your Insurance carrier or you can go to www.annualcreditreport.com to obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). If you find errors on your credit report, contact the credit reporting company to have them corrected – errors could affect your credit-based insurance score.