Credit-based insurance scores aren’t something you hear about every day, but they are important. In fact, these scores, alongside other factors, can substantially affect your insurance rate.
Your credit-based insurance scores affect your insurance rate much like you’d expect your credit scores to affect your interest rate on a new loan.
Insurance scores affect your insurance rate in a fairly predictable manner. The better your scores are, the lower your insurance rate should typically be. If your scores are not doing so well, your rates will likely be higher.
Credit-based insurance scores are only one of the many factors that determine the rates you might be offered.
How do insurance companies use my auto insurance score?
Insurance companies use your score as one of many factors to determine the premiums they charge. When insurance scores are combined with other factors, they are better able to determine the likelihood of insurance losses. This is important because insuance companies are in the business to make money, which means they need to make sure they can cover future losses and their expenses, and still be able to turn a profit. Based on all of the information at their disposal, including your score, insurance companies then set premiums for your insurance policy.
Insurance score factors
The exact factors that influence your insurance score can vary from company to company. But all insurance companies are trying to determine risk, so the factors are likely similar. They may disregard some credit details that have no impact on insurance risk, or they may factor in some of the same credit information but at different degrees.
The credit-scoring company FICO offers a credit-based FICO insurance score used by some insurance companies. It’s made up of the following major credit categories:
Payment history (roughly 40%)
Total debt (roughly 30%)
Length of credit history (roughly 15%)
Pursuit of new credit (roughly 10%)
Mix of credit (roughly 5%)