Eva-Katalin/GettyImages; Illustration by Hunter Newton/Bankrate
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.
There are many factors that go into determining your insurance rates — from where you live to the type of car you drive. One crucial component is your insurance credit score, which is used in many states to help determine your premiums. This metric is influenced by your credit history and other financial behaviors, providing insurers with a snapshot of your risk level. Bankrate can help you get under the hood and into the intricacies of what an insurance score entails, how it is calculated and why it plays an important role in determining the cost and availability of your insurance coverage.
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 have higher rates.
- 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.
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)
- 49% of credit cardholders carry debt from month to month. (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 44% 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
| Score range | Rating |
|---|
| 776 – 977 | Good |
| 626 – 775 | Average |
| 501 – 625 | Below average |
| 200 – 500 | Poor |
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
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 ratings.
Anything that affects your credit score will likely affect your insurance score, too. Having outstanding debt, making late payments, using too much credit and having many credit lines can all negatively affect your insurance 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.
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.
FAQs
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.
What does your insurance score mean? ›
An insurance score is a credit rating used by insurance companies to assess a potential insured consumer's level of risk. The insurance score is one of the primary determinants in how much monthly insurance premium the consumer will be assessed. Scores range between 200 and 997, with low scores reflecting higher risks.
How do I calculate my insurance score? ›
Your insurance credit score is calculated based on information available in your credit report, accident history, and insurance history, including previous claims. Other factors can include your age and your zip code, as well as the car's make and model.
Do you want a higher or lower insurance score? ›
Insurance scores using the LexisNexis Risk Classifier range from 200 to 997. According to the company, a score of 770 or better is considered good and will get you favorable rates. A score of 500 or below is considered poor and could result in higher premiums or being turned down for coverage.
How do I improve my insurance score? ›
10 Tips to Improve Your Insurance Score
- Pay bills on time.
- Keep outstanding balances at least 75% below your available credit.
- Avoid too many hits on your credit report from loan and credit card applications.
- Limit the number of credit accounts and credit cards in your name.
- Regularly review your credit report.
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.
What is a good insurance rating? ›
Although it is preferable to have an A-rated company, there are many situations where B-rated companies can perform even better. The reason for a B++ or B+ rating (A.M. Best defined as “good”) or below is often simply the company's size or the newness in the marketplace.
How do I find my score? ›
It may be on your statement, or you can access it online by logging into your account. Purchase credit scores directly from one of the three major credit bureaus or other provider, such as FICO. Use a credit score service or free credit scoring site. Some sites provide a free credit score to users.
What credit score do insurance companies use? ›
In addition, insurance companies use different credit scoring models, so your score could vary from one insurer to another. For example, one company may use three scoring factors (bankruptcies, judgments, and liens) and assign certain weights/points to each.
What is a good credit score? ›
For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO® Score☉ in the U.S. reached 715.
On average, drivers with poor credit pay 115 percent more for full coverage car insurance than those with excellent credit.
Does paying car insurance build credit? ›
The short answer is no. There is no direct affect between car insurance and your credit, paying your insurance bill late or not at all could lead to debt collection reports. Debt collection reports do appear on your credit report (often for 7-10 years) and can be read by future lenders.
What is the driving score on Credit Karma? ›
We'll show you how to improve your driving score by focusing on speed management, safe driving hours, vehicle handling and focused driving. You'll only need the free Credit Karma app. We'll monitor your driving in the background, and let you know if you qualify for a personalized discount.
How are insurance scores figured? ›
Generally, five different factors are used to determine your credit-based insurance score: payment history, outstanding debt, credit history length, pursuit of new credit and credit mix. You can improve your credit-based insurance score. Make payments on time. Pay bills, taxes and fines/fees as agreed.
Who calculates insurance scores? ›
Auto and home insurance companies use your credit report to calculate an insurance score that, along with information including your claims history, decides how much you'll pay for coverage.
What is one way to lower your insurance costs? ›
By requesting higher deductibles, you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30 percent. Going to a $1,000 deductible can save you 40 percent or more.
What is a good coverage score? ›
What is a good insurance score? In most cases, a good auto insurance score is a high auto insurance score. Specifically, most companies consider a good insurance score to be 770 or higher. Auto insurance scores can be as high as 997 and as low as 200.
What do insurance ratings mean? ›
An insurance company credit rating indicates an insurance company's solvency, financial strength, and ability to pay policyholder claims. An insurance company credit rating is considered an opinion (not a fact) issued by an independent agency.
What is a good credit score for car insurance? ›
A good insurance score is roughly 700 or higher, though it differs by company.
Why do insurance companies want to know your credit score? ›
Most insurance companies using credit information will include it as a factor in determining your rate. For example, someone with a relatively high credit score may pay a lower premium than someone with a relatively low credit score.
