The Auto-Insurance Score: Uncovering The Secret Rating

Auto insurance scores are ratings based on information from credit reports that insurers use to estimate how likely drivers are to file a claim. These scores are based on credit history, not driving history, and are used to predict a driver's likelihood of costing the insurer money. In most states, insurance companies analyse your credit history to come up with your insurance score, although there are some states that prohibit this practice.

Credit history and credit scores are used to calculate insurance scores

Credit scores and credit history are used by insurance companies to calculate insurance scores, which are used to determine insurance rates. While insurance scores are not the same as credit scores, they are calculated using much of the same data. This includes payment history, outstanding debt, credit history length, pursuit of new credit, and credit mix.

Actuarial studies suggest that how people manage their finances is a good indicator of how likely they are to file an insurance claim. As a result, insurance companies use credit-based insurance scores to determine an individual's insurance premium. A higher insurance score generally leads to more favourable insurance rates.

An individual's credit score can impact their insurance score, and subsequently, their insurance rates. For example, people with no credit pay an average of 67% more on car insurance than those with excellent credit. Similarly, individuals with poor credit scores may pay an average of $4,262 or more for full coverage car insurance, while those with excellent credit scores of 800 or above pay an average annual rate of $1,988.

Credit-based insurance scores cannot use any personal information to determine an individual's score. Information that is not included in credit reports and cannot be used includes race, colour, national origin, income, occupation, employment history, location of residence, interest rates, child/family support obligations, and rental agreements.

A low insurance score means a higher premium

A low insurance score means a driver is more likely to file a claim, and therefore presents a higher risk to the insurer. This is reflected in the premiums they will be charged, with lower scores resulting in higher premiums.

Insurance scores are based on credit scores, and a range of factors are used to calculate them. These include current level of debt, length of credit history, credit mix, and payment history. A credit-based insurance score is used to predict the likelihood of a driver filing a claim and costing the insurer money.

A good insurance score is considered to be anything above 700, although this does differ between companies. A score of 770 or above is considered good by LexisNexis, while FICO considers 700 to be a good score.

There are several ways to improve a low insurance score. Paying bills on time, keeping credit utilisation low, and reducing debt will all help to improve a credit score and, in turn, an insurance score.

Insurers use insurance scores to determine the likelihood of a driver filing a claim, which impacts the auto insurance premium in most states. A low insurance score can be costly, especially for auto insurance coverage, which is legally required for drivers in 49 out of 50 states in America. For example, an insurance score that causes a driver's auto insurance premium to increase by $25 per month will result in them paying approximately $300 more in premiums per year. Over 10 years, this will cost them $3,000, which could be invested or spent in other ways.

Insurance scores are not the same as credit scores

While auto insurance scores are based on credit reports, they are not the same as credit scores. Insurance scores are ratings based on information from credit reports that insurers use to estimate how likely drivers are to file a claim. A lower score indicates that a driver is riskier to insure and will likely pay a higher premium.

Credit scores are used by lenders to assess a person's position as a borrower. In contrast, insurance scores are used to determine how likely someone is to file a claim. Insurance companies supplement insurance scores with details such as driving records and claims history to determine risk levels when calculating premiums.

In the US, insurers can use credit-based insurance scores to determine premiums in most states. However, California, Hawaii, and Massachusetts have prohibited or limited the use of credit as a rating factor in determining auto insurance rates. Michigan and Washington also prohibit the use of credit in determining auto insurance rates.

FICO, a data and analytics company that measures credit risk, breaks down credit-based insurance scores into five general areas:

• Payment history (40%)
• Outstanding debt (30%)
• Credit history length (15%)
• Pursuit of new credit (10%)
• Credit mix (5%)

Credit-based insurance scores cannot use any personal information to determine a person's score. Information such as race, colour, national origin, income, occupation, employment history, location of residence, interest rates, rental agreements, and certain types of inquiries on credit reports are not included in credit-based insurance scores.

Insurance scores are calculated using factors such as debt, payment history, and credit history

Auto insurance scores are calculated based on credit reports, and they are used to estimate how likely a driver is to file a claim. These scores are dependent on factors such as debt, payment history, and credit history.

Payment history is a major factor in determining credit scores. It includes information on how well individuals have managed to pay their debts over time, including instances of late or missed payments. Credit bureaus record repayment patterns on credit reports, which are then used by lenders to assess an individual's trustworthiness. While a few late payments may not significantly impact credit scores, consistently paying bills on time is crucial for maintaining a good credit history.

Credit history also plays a significant role in insurance score calculations. This includes the length of credit history, reflecting how long individuals have had open lines of credit. A longer credit history can contribute positively to insurance scores. Additionally, credit mix, or the different types of credit utilised, such as auto loans, mortgage loans, and credit cards, is considered in insurance score calculations.

The amount of debt an individual has is another factor that influences insurance scores. Outstanding debt refers to the total amount of debt currently owed, including credit card balances, loans, and other financial obligations. Higher debt amounts can negatively impact insurance scores.

Insurance scores are not available for free

Auto insurance scores are ratings based on information from credit reports that insurers use to estimate how likely drivers are to file a claim. While these scores are based on similar information to credit scores, they are not the same thing.

While your insurance score isn't the same as your credit score, it is calculated using the same information. So, someone with a high credit score is likely to have a high insurance score.

Frequently asked questions