Understanding the basics of your insurance score—how it’s calculated and how it affects you financially—will give you a solid foundation when it comes time to shop for new coverage. It will also help you be more mindful when making everyday personal and financial decisions. Ready to learn how to think like an insurer and cut back your insurance rates? Let’s dive in.
What is an insurance score?
An insurance score (also called an insurance credit score) is a three-digit number calculated by examining your claims history and overall credit rating. The score helps insurance companies determine how risky it is for them to insure you. In other words, they determine how likely you are to have an accident or file a claim with them. The riskier you look, the higher your rates will be.
Keep in mind that your insurer uses their own customer database and scoring model to assess risk and determine your score. This means your score will vary across different insurance companies.
The Credit-Claims Connection
Studies have found a direct correlation between credit rates and insurance claims. Statistics show that someone with a lower credit score is more likely to file a claim than someone with a high credit score.
This isn’t 100% accurate for everyone, of course. Maybe you have poor credit history but you’ve never been in a car accident or filed a claim for damage to your home. If this is the case, don’t panic. Auto insurance companies will look at your driving history and a number of other factors in addition to your insurance score. And homeowners insurance companies will also factor in other elements like the age of your home, its rebuilding cost, fire protection in your community, and whether you have pets.
What’s a good score?
In the eyes of insurance companies, the higher your score is, the less likely you are to file a claim. Insurance scores range anywhere from 200–997. Anything over 776 is typically considered “good.” An average score ranges from 626–775, and anything below 500 is considered poor. (1)
What’s the score used for?
Insurance companies use these scores to help determine the amount of premium they should charge their customers. Higher scores usually signify lower premiums, and vice versa.
What types of insurance does this score impact?
Your insurance score typically applies to your auto and homeowners insurance. FICO estimates that “approximately 95% of auto insurers and 85% of homeowners insurers use credit-based insurance scores in states where it is a legally allowed underwriting or risk classification factor.” A few states, including Hawaii, Georgia, Maryland, Utah, and Oregon, prohibit the use of credit history in some instances. (2)
In certain cases, it may also affect less common types of insurance, such as boat, RV, or motorcycle coverage. (3)
Can I increase my score to reduce my insurance premium?
Yes! There are several ways to raise your score over time. While car accidents and certain incidents (such as theft, fire, and weather damage to your home) often can’t be avoided, you can take precautions to minimize other types of damage to your property.
Tips for Raising Your Insurance Score
- Make sure your home and yard are well maintained all year long and inspected regularly.
- Ensure your home is secure—especially at night and while you’re away.
- Keep fire extinguishers on every floor and working smoke detectors in every room.
- Increase your credit score by paying all bills on time and lowering the use of your total available credit.
- Keep all accounts in good standing, and avoid opening multiple credit lines in a short period of time.
- Lengthen your [good] credit history by making payments on time over the long term.
Remember that each insurance company uses its own particular method for determining your insurance score—based on trends within their own client history database—so your rates will vary. It’s wise to get quotes from multiple companies and compare them. In fact, you can get as many quotes as you want without it affecting your credit score or current rate.
If you think the score your insurance company gave you is bringing you down and you’d like to shop around for a better deal, we’d love to help you find the insurance company and coverage that’s just right for you. Contact us online or give us a call at (888) 411-1710. We look forward to hearing from you!
(1) “What Is an Insurance Score?” Progressive
(2) “Credit-Based Insurance Scores.” National Association of Insurance Commissioners
(3) “Insurance Score – How Credit Score Affects Insurance Rates.” InsuranceScored.com
