The Auto Insurance Score: Scaling The Heights Of Financial Security

Auto insurance scores are ratings that insurance companies use to evaluate a driver's risk of filing a claim. The scores are based on credit reports and credit scores, and they are used to determine insurance premiums. A good auto insurance score is usually above 700, but this varies depending on the company. The higher the score, the lower the insurance premiums will be. Conversely, a low score will result in higher premiums.

Credit history and credit scores

Credit-based insurance scores are used by auto insurance companies to determine the likelihood of future claim filings and whether an applicant should be granted an insurance policy and at what rate. These scores are calculated from information on your credit reports, including credit history, and are used to set rates based on the probability of policyholders claiming an insurance loss.

While credit-based insurance scores are distinct from traditional credit scores, a stronger credit history will generally imply a better insurance score. Credit scores evaluate your overall creditworthiness and ability to pay back credit, whereas insurance scores focus on assessing the risk of claim filings. However, credit scores and credit history can be used to determine your auto insurance score, which is often heavily based on your credit score.

Relevant factors that contribute to your insurance score include the frequency of late and on-time payments, the average length of time between your bill's due date and payment, the average length of your credit history, the number of credit inquiries, the number of liabilities still open and in good standing, previous liability defaults, and the diversity of your credit sources.

A longer credit history and a higher credit score will generally result in a higher auto insurance score, which is desirable as it indicates lower risk to the insurer. A good auto insurance score is usually considered to be around 700 or higher, although this can vary depending on the insurance company and their scoring model.

To improve your auto insurance score, it is recommended to focus on improving credit-related factors, such as paying off liabilities on or before the due date, decreasing your credit utilization, and diversifying your available credit. Additionally, maintaining old lines of credit and keeping a low credit utilization ratio can also positively impact your score. By improving your credit history and credit score, you can work towards achieving a higher auto insurance score, which may result in lower insurance premiums.

Premiums and rates

Auto insurance scores are used by insurers to predict the likelihood of future claim filings and determine if an applicant should be granted an insurance policy and at what rate. A higher score, or a good score, predicts a policyholder will have fewer accidents and claim filings. If you have a good auto insurance score, an insurance company is more likely to accept you as a customer and offer you lower rates.

Insurers will often calculate insurance scores with their own methodology or use a third-party vendor. Because of the different methods used, the scale or range of possible insurance scores, as well as what's considered high or low risk, varies widely across insurers.

• Fair Isaac Corporation (FICO): 250-900, where good scores are generally higher than 700.
• LexisNexis (combined with ChoicePoint): 500-997, where good scores are generally higher than 776.
• TransUnion: 300-850, though the company does not specify a benchmark for a good score.

A good auto insurance score is usually anything above 700, and a higher score is always better. However, it’s important to remember that each auto insurance score provider and car insurance company has its own definition of a “good” score.

In all but a few states, your credit score may impact your car insurance rates. This is because insurers create proprietary credit-based insurance scores based on consumer credit data. Bankrate's research shows that someone with an excellent credit score of 800 or above pays an average annual rate of $1,988 for full-coverage car insurance. In contrast, someone with a poor credit score may pay an average of $4,262 or more.

In states that allow credit to be used as a pricing factor, drivers with poor credit pay an average of $1,180 more per year than drivers with good credit. This is because insurers argue that the better your credit-based insurance score, the lower the chances that you will file a claim, which usually means you’ll get better car insurance rates for having good credit.

While auto insurance scores are important, they are only one of many factors that go into determining your rate. Other factors that auto insurers look at to determine rates include:

• Demographics (your age, gender, and marital status, for instance)
• The type of vehicle you're insuring
• The types of insurance you want, coverage amounts, and the deductibles

Improving your auto insurance score

Auto insurance scores are ratings that insurance companies use to evaluate your risk of filing a claim. These scores are based on your credit history and other factors from your credit report, such as your payment history, current debt, and length of credit history. A good auto insurance score is typically considered to be around 700 or higher, but this can vary depending on the insurance company and the scoring model used. Here are some ways you can improve your auto insurance score:

• Make all your debt payments on time, including mortgage, credit card, and loan payments.
• Keep your credit utilisation low, which means trying to use less credit relative to the total amount available.
• Have numerous accounts in good standing to demonstrate your ability to manage different types of credit.
• Keep your oldest credit accounts open to show a long credit history.
• Avoid making late payments or allowing accounts to go into collections.
• Limit your credit card applications to avoid multiple credit inquiries, which can negatively impact your score.
• Improve your credit score by paying bills on time, reducing debt, and managing your credit responsibly.
• Be a safe driver and avoid accidents and citations, as these will be considered alongside your score when determining your insurance premium.

By following these steps, you can improve your auto insurance score over time and potentially lower your car insurance premiums. It's important to note that auto insurance scores are just one factor that insurance companies consider when determining rates, and other factors such as your location, age, and accident history also play a role.

How auto insurance scores are calculated

Auto insurance scores are calculated using a variety of factors, including credit history, previous claims, and accident history. While the specific calculations vary by company, the scores are used to predict the likelihood of future claim filings and to determine insurance rates and eligibility.

Credit History

An individual's credit history is a significant factor in calculating their auto insurance score. This includes information such as payment history, outstanding debt, length of credit history, pursuit of new credit, and the mix of credit experience. A strong credit history implies a better insurance score, as it indicates financial responsibility and a lower risk of filing claims.

Previous Claims

The frequency of previous claims filed with an insurance company can also impact an individual's auto insurance score. Insurers interpret a high number of claims as a higher risk of future claim filings, which can hurt the individual's score. Therefore, it is advisable to limit the number of insurance claims filed over a certain period to maintain a favourable insurance score.

Accident History

Accident history, especially those recorded with the insurance provider, may also be considered when calculating auto insurance scores. A history of accidents will negatively impact an individual's score and result in higher insurance rates. Even if accidents are not included in the insurance score calculation, insurance providers will still take them into account when setting rates.

Other Factors

In addition to the above, other factors that contribute to auto insurance scores include an individual's driving record, age, location, and coverage limits. It is important to note that insurance scores are not based on personal characteristics such as race, ethnicity, religion, or gender.

Scoring Scales

Different companies use different scales for their auto insurance scores. For example, Fair Isaac Corporation (FICO) uses a scale of 250-900, LexisNexis (combined with ChoicePoint) uses a scale of 500-997, and TransUnion's scale ranges from 300 to 850 or 950, depending on the source. A good auto insurance score is generally considered to be above 700, but this can vary depending on the company and the specific scoring model used.

How auto insurance scores differ from credit scores

Auto insurance scores and credit scores are distinct from each other. While both can influence your insurance policy and rates, they are calculated differently and serve different purposes.

Purpose

Auto insurance scores are used to predict the likelihood of a driver filing a claim, whereas credit scores evaluate a person's overall creditworthiness and ability to repay various types of credit, such as mortgages, loans, and credit cards. Insurance scores focus strictly on assessing the risk of claim filings, specifically for auto insurance, how likely someone is to be in an accident, and file a claim for damages.

Calculation

Auto insurance scores are based on information from credit reports, but they are not the same as credit scores. While credit scores are calculated using factors such as payment history, credit mix, and credit utilisation, auto insurance scores weigh these factors differently. For example, FICO, a company that provides auto insurance scores, considers the following factors:

• Payment history (roughly 40%)
• Outstanding debt (roughly 30%)
• Length of credit history (roughly 15%)
• Pursuit of new credit (roughly 10%)
• Mix of credit experience (roughly 5%)

Range

The range of auto insurance scores varies depending on the scoring company. FICO auto insurance scores range from 250-900, LexisNexis scores range from 500-997, and TransUnion scores range from 300-850. A good auto insurance score is generally considered to be 700 or higher, but this can differ depending on the company.

Impact on Insurance Rates

Auto insurance scores can significantly impact insurance rates, with higher scores resulting in lower rates and worse scores increasing the likelihood of application denial or higher rates. In most states, insurance companies are allowed to use credit scores when evaluating applications and setting rates, but several states, including California, Hawaii, Massachusetts, and Michigan, prohibit or limit the use of credit scores in these decisions.

While both auto insurance scores and credit scores are important and influence each other to some degree, they serve different purposes and are calculated using different weighting of factors. Auto insurance scores are specifically designed to assess the risk of claim filings for auto insurance, while credit scores provide a broader evaluation of creditworthiness.

Frequently asked questions