What is an insurance score and how is it calculated?

What is an insurance score?

An insurance score is calculated using some information found in your credit history and is used by insurance companies when setting your rates. Statistically, some pieces of credit information relate to the likelihood that you will file a claimAn insurance claim is a request you make to your insurance company for coverage after your car is damaged or you have an accident. You can file a claim online, by phone, or in writing.. Insurance companies use a calculation based on those statistically significant credit factors to create an insurance score. It's a credit score that's designed specifically for insurance companies.

When you apply for auto insurance or home insurance, your insurance score will be factored into your rates. Similar to how your credit score will impact the kind of interest rate you get a loan, your insurance score will impact how much you are charged in premiums.

Insurance score vs. credit score

The main difference between a credit score and an insurance score is the type of information that is used. When an insurance company runs your insurance score, it's not the same as having a credit check done for a loan. It doesn't affect your credit score or appear on your credit history.

An insurance score and credit score are alike, or at least connected, in some ways. Having a high or low credit score can affect your insurance score. Both of these scores use information that is taken from your credit report to determine the risk you represent. It's also known as a credit-based insurance score.

While a credit score can be the sole reason for being denied a loan, insurance companies can't use a credit-based insurance score as the sole reason to turn you down for coverage.

How is an insurance score calculated?

Insurance companies generally use information from two sources: your credit report and your claims history for the calculation of your insurance score. How each insurance company calculates your score is proprietary, and carriers don't provide much transparency into the process.

The first factor an insurer looks at is your credit report, although they aren't always looking at the same things a bank would for a loan.

The second is your claims history, which is usually pulled from a shared database such as the Comprehensive Loss Underwriting Exchange (CLUE) or A-PLUS report.

From there, how they weigh the data and how it affects your rates varies by company.

What affects your insurance score?

Your insurance score is affected by your payment history, amount and type of debt, the length of your credit history, and recent requests for new credit, according to the National Association of Insurance Commissioners (NAIC).

Payment history (40%): Your history of making payments on time.
Outstanding debt (30%): The amount of debt you have right now,
Credit history length (15%): How long you have had a credit history.
Pursuit of new credit (10%): Recent applications for new credit.
Credit mix (5%):The mixture of different types of credit you have, like car loans, credit cards and mortgages.

How can I find my insurance score?

You can't get your exact insurance score, but you can get copies of the reports used to calculate it, including analytics company Verisk's A-PLUS report, Comprehensive Loss Underwriting Exchange (CLUE) report, and your FICO score and credit history.

You can get a free copy of your A-PLUS report by going to the Verisk website. Or you can call them at 800-627-3487.

You can get your free copy of CLUE by going to the LexisNexis website or by calling 1-866-312-8076.

It's fairly easy to get a copy of your credit report. Most credit card companies offer a free service that monitors your score. Additionally, you are entitled to one free copy of your credit report and score every year.

Keeping an eye on your credit report and claims report is a good idea. A mistake on either of those reports can be very costly to you. As a general rule, if you have a good FICO score you will also have a good insurance score.

It's important to know that if the insurance company does increase your rates (called an adverse action) because of anything found in your credit report, then by law it has to inform you. You will receive a letter notifying you that your credit report has had an adverse affect on your insurance rates. That letter must list the reasons why your rates are higher. When you receive that letter, you are entitled to a free copy of the reports used to calculate your rates, and the letter will explain how to get those reports.

What is a good insurance score?

An insurance score of 770 or more is good, and you’ll get lower rates. However, the range of insurance scores also depends on the credit monitoring agency providing the data to your insurance company.

How insurance companies calculate insurance scores and what they consider a good score will differ slightly. However, it's usually safe to assume that if you have a good FICO score, you will also have a good credit-based insurance score. According to credit monitoring company Experian, a good FICO score is between 670 and 739.

How to improve your insurance score

You can improve your insurance score by paying your bills on time, keeping a good debt-to-credit ratio (meaning you aren't using too much of your available credit), and not applying for new credit too often.

It's also important to avoid filing unnecessary claims; if it's not too far above your deductibleThe deductible is the amount you pay out of pocket for a covered loss when you file a claim., consider covering the damage out of pocket. Too many claims will hurt your insurance rates.

Your insurance score is not recalculated mid-term and won't affect your rates until renewal. However, if your credit score has gone up, it's a good time to shop around and compare rates, as that change will have an immediate effect on new insurance quotes.

How does my insurance score affect my premium?

A higher insurance score means lower rates and a lower insurance score means higher rates. It works in much the same way that a high credit score will earn you a lower interest rate when you take out a loan.

Insurance scores are only part of the picture when it comes to calculating insurance rates. A number of other factors also affect how much you pay. For auto insurance, your driving record, vehicle and location all impact your rates, while for home insurance the specifics of the house, including its location and construction, are also among the factors.

FAQ: Insurance score

How high or low can an insurance score go?

An insurance score can range from 200 to 997, but it varies by carrierAn insurance carrier is the company that provides your car insurance policy and pays claims.. If you have an insurance score of 770 or higher, you’ll get lower rates. If you have a score of 500 or less, you’re going to pay higher insurance rates.

Does my insurance score affect my credit?

No. Your insurance score doesn't affect your credit score, but the reverse is true: your credit score and what is on that report do affect your insurance score.