All You Need to Know about an Insurance Score

Several factors influence your insurance rates, such as where you live and the type of car you drive. A crucial component is your insurance credit score, which many states use to help determine your premiums. This score is influenced by your credit history and other financial behaviors, providing insurers with a snapshot of your risk level. Let’s delve into the intricacies of what an insurance score entails, how it’s calculated, and why it plays an essential role in determining the cost and availability of your insurance coverage.

What is an insurance score?

The Insurance Information Institute explains that insurance scores are confidential ratings created by insurance companies using data from your credit history. These scores help predict the likelihood of future insurance claims for both home and auto coverage in states where this practice is permitted.

Statistically, individuals with higher credit scores tend to file fewer insurance claims. Consequently, insurance companies use data from major credit bureaus to develop their own rating system, similar to a credit score but specifically for insurance purposes. Typically, drivers and homeowners with higher credit-based insurance scores receive more favorable rates.

Why is an insurance score important?

Insurance scores are crucial in determining your insurance premiums, according to the Insurance Information Institute (Triple-I). These scores help insurance companies evaluate the risk associated with providing coverage to a customer. By assessing this risk and other factors, insurers set premiums to ensure they remain financially stable while covering potential claims.

How is an insurance score calculated?

Insurers consider several factors to determine your insurance score, many of which overlap with those used to calculate your credit score. While some states mandate that insurance companies disclose their scoring methods, this isn’t universally required. Key elements that may influence your insurance score include your past credit performance, outstanding debt, length of credit history, and recent credit inquiries. The specific factors affecting your insurance score can vary based on your insurer’s underwriting policies, your state’s regulations, and any third-party credit information sources used by the insurer.

What is a good insurance score?

Similar to credit scores, higher insurance scores indicate better risk profiles. LexisNexis, a data analytics company specializing in risk assessment, uses a scoring range from 200 to 997. Generally, scores above 775 are considered favorable.

Insurance score chart

How to improve your insurance score

Fortunately, there are several strategies you can use to potentially improve your insurance score. Many of these strategies overlap with those used to boost credit scores. Essentially, practicing strong financial habits can positively impact both your credit and insurance scores.

Here are some effective ways to improve your credit-based insurance score:

• Pay Bills on Time: Consistently paying your bills on time helps avoid late fees and missed payments. If possible, pay the full balance each month instead of just the minimum to maintain a low credit utilization ratio.
• Keep Credit Utilization Low: Aim to use less than 30% of your available credit. Lower credit utilization can positively affect both your credit and insurance scores.
• Pay Down Debt Quickly: Focus on reducing any outstanding debt, such as credit card balances or loans. Paying down debt promptly can improve your financial profile and insurance score.