A High Insurance Score Will Help Lower Auto Insurance Costs!
Just like all of us have a credit score, which tells banks and other lenders your likelihood to default on a loan, an “insurance score” is a rating used by insurance companies to assess your likelihood to file a claim. It’s based on factors like credit history, claims history, and financial behavior. A higher insurance score generally means lower premiums, while a lower score can result in higher costs. It’s the reason why no two people will pay exactly the same premium for exactly the same car or home.
Insurance scores typically range from 400 to 997, with scores above 770 considered good. They are used for various types of insurance, including auto, homeowners, and even commercial insurance.
While the exact formula to get your score varies by the carrier, here are the key components and the approximate weight on your insurance score:
- CreditPerformance (40%) – Includes past-due items, collections, and bankruptcies.
- Current Debt Level (30%) – Considers total debt and the proportion of available credit used.
- Length of Credit History (15%) – Evaluates the age of your oldest account and the number of accounts.
- New Credit Inquiries (10%) – Looks at recent credit applications and new accounts.
- Types of Credit Used (5%) – Examines the mix of credit accounts, such as credit cards, auto loans, and mortgages.
Insurance companies use these scores, often provided by LexisNexis Risk Solutions, FICO, Experian, and Trans Union to help determine policy pricing and underwriting decisions. For auto insurance, both your insurance score and driving record influence your insurance premiums, but they measure different aspects of risk. Your driving record reflects your history on the road, including accidents, traffic violations, and claims. Insurers typically review the past three to five years of your driving history, though serious offenses like DUIs may stay on record longer. Your insurance score measures the likelihood of filing a claim. Studies have shown a correlation between financial obligations and the propensity to file a claim. An insurance score can also be an indicator of the severity of a future claim.
Even with a clean driving record, a low insurance score can still lead to higher premiums. On the other hand, a high insurance score won’t necessarily offset a poor driving history. Insurers weigh both factors when determining rates; so you could have a really high score, but your driving record might be less than stellar, affecting your rates, or a really good driving record, but still a poor insurance score. In order to pay the lowest rates, it’s really to your advantage to maintain a high insurance score and clean driving history.
So how can you keep your insurance rates down? Here are some tips:
- Pay Bills on Time – Late payments can negatively impact your score, so staying current on all financial obligations is important.
- Reduce Outstanding Debt – Lowering your credit utilization ratio (the amount of credit used versus available) can boost your score. Also know as your DTI – debt to income ratio.
- Limit Credit Inquiries – Applying for multiple new credit accounts in a short period can lower your score.
- Maintain a Long Credit History – Older accounts with a solid payment record are positive to increase your score. Don’t cancel that old credit card just yet if it was your first one!
- Check Your Credit Report for Errors – Mistakes on your credit report can hurt your score, so reviewing and disputing inaccuracies is important.
- Don’t text and drive – Multiple studies have shown that driving while texting is even more dangerous than driving under the influence of alcohol or other substances. It just make sense to just pay attention to the road, and leave texts for later, or at least, stop at the side of the road if you must text.
- Avoid Frequent Insurance Claims – Filing multiple claims can mean higher risk to insurers. Do some DIYing! One of the best ways to keep your claims history clean is to increase your deductibles to at least $1000.00 and then pay windshield and towing claims out of pocket. Do not call your auto insurance carrier for the little things, pay them on your own and keep your auto insurance for the big things that may happen.
Call a knowledgeable Anderson Insurance expert today for additional information about insurance scores and for the best auto insurance.
Anderson Insurance Group – Salt Lake City, Utah – 801-262-1551
Insurance Score vs. Credit Score | Openly
Credit Reports | Utah Insurance Department
Credit Scores vs. Insurance Scores | insurancescores.fico.com
Thank you Dan Rojas for eight years of service at Anderson Insurance Group and your contribution to this blog.
