Auto insurance scores: What you need to know

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In a Nutshell

Introduced in the early 1990s, credit-based auto insurance scores are meant to help predict the likelihood you’ll have a car accident or otherwise file a claim, which could result in your insurance company experiencing a loss. This means that factors outside of your driving record can influence how insurable you are.

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Your auto insurance scores might be directly affecting your insurance rate, though you may not even know they exist.

For many people, the long list of factors influencing auto insurance rates is a mystery. You probably realize that things like where you live, accidents and your prior claim history can affect your rates. But you may not be aware that your credit history can, too.

Since an auto insurer’s profitability depends on its ability to set rates based on the probability of policyholders claiming an insurance loss, insurers are always looking for new ways to better predict this information. In the early 1990s, they found that credit-based auto insurance scores could help.

Here’s what you need to know about auto insurance scores.


What is an auto insurance score?

Insurance scores are numerical scores used to predict the likelihood that you’ll have an accident or fill out a claim. They’re 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.

Like with credit scores, many companies, including FICO, have come up with their own auto insurance scoring models and formulas. Check with your auto insurance company to see what auto insurance score it uses and who provides it.

But how do insurance scores affect your rates, and how do your credit scores relate to your insurance scores?

How are insurance scores calculated?

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%)

If you feel an insurance score may be negatively affecting your insurance rate, it doesn’t hurt to shop for better car insurance rates from time to time.

Are my auto insurance scores tied to my credit scores?

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.

FAST FACTS

Do all states allow credit information to be used to calculate rates?

No, certain states have banned the use of credit when calculating insurance rates, including California, Hawaii and Massachusetts. Check with your state’s insurance-regulating department to see if credit history can factor into car insurance rates in your state.

But data shows that your credit scores and auto insurance rates correlate. According to The Zebra’s “The State of Auto Insurance Report for 2019,” drivers with poor credit scores (300 to 579) pay more than twice as much for their auto insurance compared to people with exceptional credit scores (800 to 850).

Additionally, improving from one credit tier to the next, such as from poor to average, can save drivers up to 18% per credit tier each year, the report says.

How can I improve my auto insurance score?

If you want to make sure your insurance scores are headed in the right direction, check your current scores.

If your scores are lower than you’d like, there are a few things you can do, or avoid doing, to help improve them. Making all of your debt payments on time, keeping your credit utilization down, and having numerous accounts in good standing can help your auto insurance scores (and your credit scores, too!).

You may also want to keep your oldest credit accounts open to show a long-established track record.

On the other hand, some actions will lower your insurance scores. Avoid making credit payments after the due date and allowing accounts to go to collections. You’ll also want to avoid a high credit utilization ratio. Finally, many recent applications for new credit may hurt your scores too.


What’s next?

Understanding what an auto insurance score is and how it works is just part of the picture. Next, you can dive deeper.

Learn how different factors, including changes in your insurance score and claims history, can affect your rates.


About the author: Lance Cothern is a freelance writer specializing in personal finance. His work has appeared on Business Insider, USA Today.com and his website, Mone… Read more.