Understanding Auto Insurance Scores: Are You A Safe Bet?

Auto insurance scores are ratings based on information from credit reports that insurers use to estimate how likely drivers are to file a claim. A good auto insurance score is usually anything above 700, and a higher score is always better. However, each auto insurance score provider and car insurance company has its own definition of a good score. For example, FICO considers 700 to be a good auto insurance score, while LexisNexis and TransUnion both start their good-score ranges at 776.

A good auto insurance score is 700 or higher

A good auto insurance score is typically 700 or higher. While the definition of a "good" score varies across insurance providers, a higher score is always preferable. A good insurance score indicates that you are less likely to file a claim, which in turn means you are less likely to cost the insurer money and will therefore benefit from lower premiums.

Auto insurance scores are calculated based on information from credit reports, including payment history, outstanding debt, length of credit history, pursuit of new credit, and mix of credit experience. These scores are used to predict the likelihood of future claim filings and to determine whether an applicant should be offered insurance and at what rate.

Since auto insurance scores are largely based on credit history, improving your credit score will generally lead to a higher auto insurance score. This can be achieved by paying bills on time, maintaining a low credit utilisation ratio, and keeping old credit accounts open to demonstrate a long credit history.

It is worth noting that auto insurance scores are not the only factor in determining insurance rates. Other factors such as driving record, age, and location can also impact the cost of insurance. Additionally, some states in America have banned the use of credit when calculating insurance rates, including California, Hawaii, and Massachusetts.

The score is based on your credit history

Auto insurance scores are based on your credit history, not your driving history. Credit-based auto insurance scores were introduced in the early 1990s to help predict the likelihood of a driver having a car accident or filing an insurance claim. This means that factors outside of your driving record can influence how insurable you are.

Your auto insurance score is calculated from information on your credit reports. Car insurers use auto insurance scores as one of many factors to determine how much you’ll pay for car insurance in states where that is allowed.

Certain states have banned the use of credit when calculating insurance rates, including California, Hawaii, Maryland, Massachusetts, and Michigan. Check with your state’s insurance-regulating department to see if credit history can factor into car insurance rates in your state.

Each company uses its own methodology to interpret the credit information that builds your insurance score, so exact insurance score ranges and how they affect rates are unknown.

That said, some insurers purchase credit-based insurance scores from companies like FICO. FICO weighs the following factors to determine its auto insurance scores:

• 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%)

Your auto insurance scores are calculated based on the information in your credit reports. So your credit information could potentially have an impact on your auto insurance rates.

That said, your auto insurance scores aren’t directly tied to your credit scores. While both are calculated using information from the same source, they aren’t technically related.

It predicts the likelihood of filing an insurance claim

Auto insurance scores are ratings based on information from credit reports that insurers use to estimate how likely drivers are to file a claim. They are meant to help predict the likelihood that you’ll have a car accident or otherwise file a claim, which could result in your insurance company experiencing a loss. In other words, they predict the likelihood of filing an insurance claim.

Insurance scores are distinct from traditional credit scores. While both can influence your insurance policy and rate, insurance scores focus strictly on assessing the risk of claim filings. In the case of auto insurance, insurance scores solely assess how likely you are to be involved in an accident and file a claim for damages.

Several factors can contribute to your auto insurance score, including previous claims, accident history and credit history. Previous claims filed with your insurance company stay on your record for several years. Insurers interpret a high frequency of claims as a higher risk of future claim filings, thereby hurting your score. Accident history, particularly history that is on record with your insurance provider, may also be used to calculate your insurance score.

Credit history contributes significantly to your insurance score. A stronger credit history implies a better insurance score. Relevant factors 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 higher score means lower insurance premiums

A good auto insurance score is usually above 700, and a higher score is always preferable. A higher auto insurance score means that you are less likely to file a claim, and as a result, you will often be offered lower insurance rates.

Auto insurance scores are based on your credit history and are used to predict the likelihood of future claim filings. The higher your score, the less likely you are to file a claim. This means that insurance companies are more likely to accept you as a customer and offer you lower rates.

A higher auto insurance score can result from having a long credit history, a diverse credit mix, and a good payment history. It is also influenced by factors such as your age, driving record, and the type of car you drive.

By improving your credit score and maintaining a good driving record, you can work towards achieving a higher auto insurance score, which can lead to lower insurance premiums.

You can improve your score by paying bills on time

Auto insurance scores are ratings based on information from credit reports that insurers use to estimate how likely drivers are to file a claim. A good auto insurance score is usually above 700, and a higher score is always better. However, each auto insurance score provider and car insurance company has its own definition of a "good" score.

You can improve your auto insurance score by paying your bills on time. Paying your bills on time is a crucial aspect of maintaining a good credit score, which directly influences your auto insurance score. Here are some ways you can improve your score by prioritising timely bill payments:

• Maintain a positive payment history: Paying your bills on time is a critical factor in calculating your credit score and, by extension, your auto insurance score. Late or missed payments can negatively impact your score, while a consistent record of on-time payments contributes to a higher score.
• Reduce the frequency of late payments: Each time you make a late payment, it can negatively impact your credit score. Aim to pay all your bills, including credit card bills, loans, and utilities, by their due date to avoid any delays that could lower your credit score and, consequently, your auto insurance score.
• Improve your credit utilisation: Paying your bills on time helps maintain a low credit utilisation ratio. This ratio compares the amount of credit you're using to your total available credit. Keeping your balances low relative to your credit limits demonstrates responsible credit management, which can positively influence your credit score and auto insurance score.
• Build a long credit history: Paying your bills on time over an extended period contributes to building a long credit history. Lenders and insurers view a lengthy record of timely payments as a positive indicator of your financial responsibility and reliability. This, in turn, can help improve your credit score and auto insurance score.
• Diversify your credit: Paying your bills on time across different types of credit accounts, such as credit cards, mortgages, or personal loans, demonstrates your ability to manage various credit sources effectively. This diversification can enhance your credit score and, by association, your auto insurance score.
• Avoid debt accumulation: Paying your bills on time helps prevent the accumulation of excessive debt. Keeping your debt levels manageable not only improves your credit score but also reflects positively on your auto insurance score, as it indicates financial stability and a lower risk of future insurance claims.

By prioritising timely bill payments and effectively managing your credit, you can significantly improve your credit score and, as a result, enhance your auto insurance score. This, in turn, can lead to better auto insurance rates and increased financial stability.

Frequently asked questions