Transunion And Auto Insurance: Who's Using The Credit Bureau?

Auto insurance companies use credit-based insurance scores to determine the likelihood that a customer will file a claim. TransUnion's quarterly report reveals that auto insurance shopping rates were up 12% in Q2 2023 compared to the same period in 2022. The primary driver behind this increase was the search for lower insurance premiums, as the Consumer Price Index for motor vehicle insurance had risen 17% in June 2023 year-on-year. The report categorises consumers based on their credit-based insurance scores, with higher-risk consumers scoring between 300-500, moderate-risk consumers scoring 501-700, and lower-risk consumers scoring 701 and above.

How credit history impacts auto insurance scores

Credit history can have a significant impact on auto insurance scores and, consequently, the rates that individuals pay for their auto insurance. This is because insurance companies use credit information to calculate a customer's likelihood of filing claims, with those in lower credit tiers expected to file more claims and thus receiving lower insurance scores and higher rates.

While each insurer has its own proprietary underwriting system for calculating insurance-based credit scores, common factors that usually factor into this score include:

• Outstanding debt: The amount of debt an individual currently has.
• Credit history length: How long an individual has had an open line of credit.
• Credit mix: The different types of credit an individual has, such as auto loans, mortgage loans, and credit cards.
• Payment history: How well an individual has managed to pay their debts over time.
• Pursuit of new credit: Recent attempts to open new lines of credit.

In addition, an individual's credit score can also impact their auto insurance rates. Credit scores range from 300 to 850, and companies typically divide scores into several tiers. A good credit score is usually considered to be 770 or higher, while a score below 579 is considered poor. The higher an individual's credit score, the lower their insurance rates are likely to be, as they are seen as a lower credit risk.

It is important to note that the impact of credit history on insurance premiums can vary depending on the state, as some states prohibit or limit the use of credit history in determining insurance rates. However, in states where credit history is a factor, it can have a significant influence on the cost of auto insurance.

How to lower insurance premiums

TransUnion provides credit scores based on the VantageScore® 3.0 model. Lenders use a variety of credit scores and are likely to use a different model to assess your creditworthiness.

Credit scores are used by insurance companies to determine the likelihood that you'll file an insurance claim. A good credit score can help you secure lower insurance premiums. Here are some ways to lower your insurance premiums:

Improve Your Credit Score

Having a good credit score is beneficial when it comes to insurance premiums. A higher score indicates that you're a low-risk customer and will likely pay a lower premium. To improve your credit score, ensure that all your open accounts are in good standing, make payments on time, and keep your credit balances low.

Increase Your Deductible

You can often opt to increase your car insurance deductible, which is the amount you pay out of pocket before your insurance coverage kicks in. By increasing your deductible, you can decrease your insurance payments. However, make sure you have enough savings to cover the higher deductible in case of an incident.

Compare Insurance Quotes

Shop around and get quotes from multiple insurance companies. Compare rates, coverage options, and discounts offered. Consider using a local insurance agent or your state insurance department to obtain quotes and understand the market better. Remember, the cheapest insurance option might not always be the best, so focus on finding the right coverage for your needs.

Maintain a Good Driving Record

Having a clean driving record can significantly impact your insurance premiums. Safe drivers often qualify for lower rates. Avoid speeding, accidents, and other driving incidents to keep your insurance costs down. Additionally, a claims-free or violation-free history can make you eligible for additional discounts.

Explore Discounts and Safe Driving Programs

Many insurance companies offer discounts for various reasons, such as bundling your car and property insurance, paying upfront, signing up online, or participating in safe driving programs. Ask your insurance provider about the discounts they offer and how you can qualify for them.

Choose a Car That's Cheaper to Insure

The make and model of your car can affect your insurance rates. Some vehicles are more expensive to insure due to higher repair costs or a higher likelihood of theft. When purchasing a new car, consider choosing one that is safer and cheaper to insure.

How to get competitive pricing on insurance premiums

To get competitive pricing on insurance premiums, there are several strategies you can employ. Firstly, it's important to understand that insurance premiums are calculated based on a variety of factors, including the type and amount of coverage, your personal information, and your insurance history. Here are some ways to get competitive pricing:

• Shop around: Compare prices and policies from different insurance providers. By obtaining quotes from multiple companies, you can find the most affordable option for your needs. Online aggregation sites make it easier to compare prices from various insurers.
• Bundle your insurance policies: Consider combining multiple types of insurance, such as auto, home, and life insurance, with a single company. This often results in discounts and can lower your overall premiums.
• Improve your credit score: For certain types of insurance, such as auto insurance, a higher credit score can lead to lower premiums. Insurance companies view individuals with higher credit scores as lower-risk clients.
• Reduce your coverage: While this may not always be the best option, decreasing your coverage can lower your premiums. However, carefully consider your situation and the likelihood of needing to use the insurance before making this decision.
• Take advantage of incentives: Some insurance companies offer incentives or discounts for healthy habits, such as quitting smoking or maintaining a good driving record. These incentives can help lower your premiums.
• Pay attention to dynamic pricing: Insurance companies use dynamic pricing, adjusting premiums based on current risk factors and market changes. Stay informed about these changes and be ready to adapt your insurance choices accordingly.
• Optimize your personal information: Insurance companies consider various personal factors when calculating premiums, such as age, gender, marital status, and driving record. While you can't change your age, you can work on improving other aspects of your personal information, such as your driving record or credit score, to potentially lower your premiums.
• Choose the right payment options: Insurance companies may offer discounts if you sign up for paperless billing or pay the full amount upfront instead of making minimum payments. Additionally, some insurers provide cash flow payment plans that break down your annual premium into smaller, more manageable payments.

Remember, the key to obtaining competitive pricing on insurance premiums is to understand the factors that influence premium calculations and then take appropriate actions to mitigate risks and lower costs.

The difference between a credit score and a credit-based score

TransUnion is one of the three major credit bureaus in the US, alongside Equifax and Experian. These bureaus collect, analyse, and disburse consumer information in the credit markets. They also provide credit scores, which are used by lenders to assess an individual's creditworthiness.

Now, let's discuss the difference between a credit score and a credit-based score:

A credit score is a three-digit number that rates an individual's creditworthiness. The most common type of credit score is the FICO score, which ranges from 300 to 850. A higher score indicates higher creditworthiness and a greater likelihood of being approved for loans and better interest rates. Lenders use credit scores to evaluate the risk of lending money to an individual and determine the terms of the loan.

On the other hand, a credit-based score, or auto insurance score, is used by insurance companies to determine the risk of having a person as an insurance client. It is based on an individual's credit history and can impact their insurance premium. A credit-based score is not the same as a credit score, but it is derived from it. While a credit score is pulled when a person is borrowing money, a credit-based score is used by insurance companies to assess the likelihood of an individual filing an insurance claim.

Several factors are considered when calculating a credit score, including payment history, credit mix, new credit accounts, credit utilisation ratio, and length of credit history. Maintaining a good credit score is important, as it can impact not just loan approvals but also insurance premiums and other financial aspects of life, such as utility deposits and employment prospects.

Credit-based scores for auto insurance specifically consider factors such as the status of open accounts, late payments, and the length of credit history. A good credit-based score can result in lower insurance premiums, as it indicates lower risk to the insurance company. Conversely, a low credit-based score may lead to higher insurance premiums.

How auto insurance rates are based on risk

Auto insurance companies use multiple factors to determine a driver's risk profile, which helps them set insurance rates. The lower the risk, the better the insurance rates. Here are some of the main factors that affect auto insurance rates:

Credit Score

A driver's credit score is a significant factor in determining their insurance rates. Insurance companies use a credit-based insurance score to assess the likelihood of filing an insurance claim. A low credit score indicates higher risk, leading to higher insurance premiums. Conversely, a high credit score suggests lower risk and results in lower insurance rates.

Driving Record

A driver's history of moving traffic violations, accidents, and convictions (such as DUI/DWI) significantly impacts their insurance rates. A clean driving record can lead to lower premiums, while multiple infractions can result in higher rates and even difficulty finding insurance coverage.

Age and Driving Experience

Young and inexperienced drivers, especially teenagers, are considered high-risk due to their higher likelihood of being involved in accidents. As a result, they pay higher insurance rates. Insurance rates tend to decrease as drivers age, with rates typically becoming more affordable after age 25.

Vehicle Type

The type of vehicle driven also affects insurance rates. Insurance companies consider the safety ratings, repair costs, theft rates, and comprehensive claims history of similar models when setting rates. Vehicles with high safety ratings may be eligible for insurance discounts, while those with high theft rates tend to be more expensive to insure.

Location

Both the state and zip code of a driver's location impact insurance rates. State regulations, such as minimum coverage requirements and no-fault laws, directly influence insurance costs. Additionally, insurance rates vary depending on the population density, accident rates, crime rates, and weather-related claims of the specific location.

Insurance History

Insurance companies view continuous coverage as a positive indicator when assessing risk. A lack of insurance history or coverage gaps may be considered higher risk and result in higher premiums.

Other Factors

Other factors that can influence insurance rates include annual mileage, marital status, gender, and coverage selections. Higher annual mileage, being single, and choosing more comprehensive coverage options can lead to higher insurance rates.

Frequently asked questions