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Never heard of an insurance score? You’ve got one. It’s a number auto insurance carriers use to help determine your premium rate, and it’s generally based on you driving record combined with information found in your personal credit report.
While it may at first seem odd or even unfair for companies to use your credit report, this information is very predictive of future behaviors, including accidents and claims. So get used to it. Most auto insurance providers and carriers now use this information to develop more accurate premium rates. The lower your insurance score, the lower your premium rate is likely to be.
But that doesn’t mean your insurance score and your credit score are one in the same. A credit score indicates your ability to repay debts. An insurance score predicts the likelihood of you becoming involved in a car accident or filing claim against your policy. Basing the rates of all drivers more accurately, is thanks in part to the use of these different scores, auto insurance providers are able to more accurately anticipate their costs. The good news is, this helps keep auto insurance rates lower for everyone.
Not all the factors in your credit score are considered by auto insurance carriers.They aren’t giving you a bank loan after all, so they don’t care how much money you earn or how much you owe. They’re looking more for patterns of responsibility. Because both above-average and below-average factors in your credit history are evaluated, drivers still have the opportunity to get a lower auto insurance premium even if their credit histories contain some below-average data.
While insurance rates are calculated based on laws that vary state by state, as a general rule favorable credit factors include the following:
- Long-established credit history
- Numerous open accounts in good standing
- No late payments or past due accounts
- Low use of available credit
Unfavorable credit factors might include:
- Collection accounts
- Numerous past-due payments
- High use of available credit
- Numerous recent applications for credit
Improving an unfavorable insurance score is doable. Some factors will of course be out of your control — having a short credit history, for example. Still, many drivers are able to improve their score in a short period of time by making loan and mortgage payments on time, keeping accounts in good standing, and avoiding making multiple credit applications over the space of a few months. Also, if you are living near the limits of your credit, it might have an unfavorable impact on your insurance score. Paying some of that down would help.
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