What is an insurance score?

Think your credit score affects only your ability to borrow money? Think again. Your credit score also can affect your access to homeowner and car insurance and the size of your monthly premiums. In fact, your credit score can be used to determine your “insurance score.” Never heard of such a thing? Here are the basics on credit-based insurance scores:

Definition of insurance score
As defined by the Insurance Information Institute (III), a person’s insurance score is “a numerical ranking based on a person’s credit history.”

Use of insurance scores
In order to fairly calculate premiums and predict risk, insurance providers try to predict who will submit claims prior to this actually occurring. Insurance carriers do not charge their customers a standard rate, but rather, one that is tailored to each individual’s potential risk. According to the III, actuarial studies have found that a person’s financial stability serves as a good indicator for making these predictions, helping insurers determine a person’s insurance risk level and calculate premium charges equal to that risk level. That is, people with good credit are typically less like to suffer a loss or submit a claim than those with poor credit.

Insurance score criteria
Although a person’s credit record is used in determining his or her credit-based insurance score, it is not the only contributing factor. Some of the data taken from a credit record for use in calculating an insurance score includes:

  • Payment history
  • Credit history and type
  • Length of payment and credit history
  • Outstanding debt
  • Available credit
  • Items of public record – bankruptcies, etc.

When compared to a credit score, an insurance score generally relies more heavily on information such as whether you've paid your bills on time and for what length of time, and less so on the amount of debt you have outstanding. Moreover, the importance of your insurance score depends upon where you live – each state has different insurance regulations – and the insurance company you use.

How much do insurance scores matter?
Keep in mind that insurance scores are not the only criteria used to determine if you qualify for insurance and what rate you pay. Insurers also look at motor vehicle reports, your driving record, claims history, home condition or auto features, as well as other information. So an insurance score alone will not dictate the price you’ll pay for insurance or whether or not you qualify.

Also, your insurer may not even use a credit-based insurance score. Some states do not allow credit history to be used for insurance purposes or have regulations regarding how the information can be used. Different insurance companies weigh credit data differently. If you’re interested in knowing whether your insurer uses credit information and insurance scores in their underwriting decisions, contact your insurer directly.

Improving your insurance score
You can work to improve your credit-based insurance score in many of the same ways you would work to improve your credit score. The easiest thing you can do is always pay all your bills on time, as well as eliminate any outstanding balances on your credit cards. This does not mean closing all of your accounts when paying off your credit cards, because a good credit record typically includes one or two accounts that have been open and used responsibly for a certain amount of time.


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