An insurance score is a score calculated from information on your credit report. Your credit information can be very predictive of future accidents or insurance claims, which is why many insurance companies use this information to develop accurate rates.
Your credit score is one of the factors that can affect your car insurance premium. If you want to understand better what goes into the pricing of your car insurance and how you can lower it, you need to be aware of the relationship between your credit score and your insurance score.
Why Does Your Credit Score Matters to Your Insurance Score?
Insurers first started using credit scores to help determine premium rates in the mid-1990s. They realized that there was a significant relationship between a customer’s credit score and how likely they were to file a claim. Those with lower credit scores were more likely to file a claim and those with higher credit scores were less likely to file a claim. At least two studies have supported this observation: a 2003 study by the Bureau of Business Research and a 2007 study by the Federal Trade Commission.
Although this connection exists and is well-known among insurance underwriters, the reason for it isn’t clear. Some speculate that drivers who pay their bills on time are more likely to be responsible in general, and thus, less likely to be involved in an accident. Note that the use of credit scores to determine auto insurance rates is prohibited in California, Hawaii, and Massachusetts (Maryland and Hawaii for homeowners insurance).
What Is the Difference Between a Credit Score and an Auto Insurance Score?
When calculating your car insurance rate, insurers use your credit score to derive something called an insurance score or a credit-based insurance score.
Each insurance company has its own formula that determines how much weight is placed on insurance score when calculating rate. This is why your rate may vary from insurer to insurer.
To calculate your insurance score, the insurer uses your:
- Credit score
- Accident history
- Claim history
The latter information can be accessed via one of two databases: the Automated Property Loss Underwriting System (A-PLUS) and the Comprehensive Loss Underwriting Exchange (CLUE).
Like credit scores, insurance scores are three-digit numbers. They range from a low of 200 to a high of 997. In general, scores below 500 are considered poor and scores above 770 are considered good.
Drivers who wish to know their insurance score may order a report from LexisNexis or contact their insurance carrier.
What Information Goes Into an Insurance Score?
There are a variety of companies that created credit-based insurance scores for insurance companies to use. FICO looks at five general areas to best determine how you manage risk. These five areas include:
- Your payment history
- Outstanding debt
- Credit history length
- Your pursuit of new credit
- The types of credit you have that comprise your credit mix
Each of these areas is weighted differently to come up with your total credit score. Race, religion, gender, marital status, age, income, the location of residence, and additional information not included in your credit report do not factor into your insurance score.
What Are the Concerns About Credit and Insurance Scores
Although the use of credit and insurance scores is widespread, some consumer protection groups worry about the fairness of using them to determine auto insurance premiums.
Before the use of credit and insurance scores, insurance companies based their rate decisions on traditional actuarial research only. This was a lengthy process that involved developing a theory about driver behavior and collecting data to determine whether it was correct. For example, one theory might be that drivers with a DUI conviction will file more insurance claims in the year following the DUI. Actuaries would then examine the statistical evidence to determine whether that theory could be supported.
Not only was this method for evaluating risk slow, but by itself, it wasn’t very accurate. However, insurers have found that using credit and insurance scores as a factor in their decisions has helped to better align drivers with appropriate insurance rates. Lower-risk drivers pay less for their insurance premiums and higher-risk drivers are charged at a rate that is fair relative to their risk level.
Can You Improve Your Credit Score and Insurance Score?
If you’re concerned about your insurance premium, there’s good news: Improving your credit score can improve your insurance score and possibly, lower your premiums. Consumer Reports found that for a driver with an excellent credit score, a single moving violation might increase their premium by $122 per year. For a driver with a good score, their rate would go up by $233. And for a driver with a poor score, their rate would go up by $1,301—and that was for the same violation.
There are several things you can do to raise your credit score. These three steps will give you the biggest return on the investment:
1. Address errors on your credit report.
According to the FTC, one in four people have errors on their credit reports, and about five percent of people have mistakes that are substantial enough to significantly lower their credit score. If you’re in that situation, you can have the errors corrected. Periodically review your credit report and dispute any mistakes that you come across.
2. Pay your bills on time, every time.
On-time payment is one of the most significant factors that influence your credit score. Even paying a bill a few days late can negatively affect your credit. Set up automatic bill pay or add payment reminders to your calendar to help you develop the habit of paying your bills on time.
3. Reduce the amount of debt you have.
Other than payment history, what will have the biggest impact on your credit score is your credit utilization—that is, how much you owe on your credit cards compared to their credit limits. If you consistently max out your cards, then it will negatively affect your credit score. To avoid maxing out your cards, make a budget, track your spending, and if necessary, speak to an expert about your finances.
Final Tip:
Consider looking for insurance companies that offer discounts like:
- Bundling your home and auto insurance
- Completing a defensive driver course
- Paying your bill in full rather than monthly
Disclaimer: This article is intended to be informational in nature, may not be current, and is subject to change without notice. Please contact your agent or carrier for your specific coverage implications.
View Comments (19)
I understand you have used Trans Union to determine my insurance score, however none of the listed items seem to apply to me: I bundle auto and home with Hartford, pay all credit cards in full on time and own my own home, have never lapsed on a mortgage payment. I have healthy credit card limits.
Please advise how I can improve this score.
Hi Judith - For more information, you can request a consumer report at this address: https://consumer.risk.lexisnexis.com/
I dont understand why I cant sign up for auto insurance. My credit score is ok , no late payments and no debt to speak of,
Thanks,
Cyrena Dailey
Hi Cyrena - Thanks for reading Extra Mile. To discuss this matter in more detail, please give our customer service representatives a call at 800-423-6789.
I received a letter that the consumer reporting agency stated I was not offered a lower premium due to 4 items. I do not agree with these 4 items and wish to discuss these with someone you has an understanding concerning this issue.
Hi Arthur - If you'd like to discuss these items in more detail, please call our customer service department at 877-896-9320 and one of our representatives will be happy to review them with you. Thanks for reading Extra Mile!
Received letter (Customer Privacy Notice) indicating that my credit score from Trans Union was low. I froze my account in 2019 after the Equifax data breach.
I do have excellent credit. Is there a way to update your records so I can get a more accurate on-line quote for auto and home?
Thank You
Hi Richard, thanks for reaching out. You can find contact numbers to reach us at https://www.thehartford.com/contact-the-hartford. Our specialists would be happy to help out!
Thanks for reading Extra Mile!
I am currently insured with Hartford for Both Home and Auto. Both of my Policy's come up for Renewal 3-31-22. Can I find out what my new Auto Premium Will be and what my Insurance score is?
Samuel - Thank you for being a customer of The Hartford. To get answers specific to your policy, can you please call our customer service reps at 800-423-6789. They are available M-F: 8 a.m. to 9 p.m. ET and Sat: 8 a.m. to 6 p.m. ET.
Are insurance premium auto insurance costs lowered now that we are driving much less during the pandemic?
Arnold - For questions about your policy, please call contact our customer service center at 800.423.0567.
what credit reporting agency does The Hartford use to check customers credit?
Hi Joseluis - Please contact our customer service center at 800.423.0567. Our agents are available Monday-Friday 7am to 11pm EST and Saturday and Sunday 8am to 6pm EST. Thank you!
I HAVE YOUR INS AUTO SINCE 2002 NEVER CCDIENT OR TICKETS BUT NEVER GET DISCOUNT FOR YEARLY PREIUM PAYOUT?
My homeowners insurance premium you state would be lower based on my credit report. I received a copy of my credit score and it is in very good category and right on border between very good and excellent. Please advise which category credit score would make my premium lower.
An increase in my dwelling to $211000 is unacceptable. And the resulting increase in premium is unacceptable. Unless you lower my premium by $100 I will be switching coverage to the insurance company who covers my auto. It is $100 less with them.
Hi there, we can certainly understand your frustration with the increase. If you’d like to discuss your credit or insurance score and dwelling coverage, please call our customer service department at 1-800-624-5578 and one of our representatives will be happy to help. Thank you!
My insurance score figured into my recent premium increase. The letter stated that the amount of new credit cards influenced the score. This troubles me. I needed to cancel two different cards. One because it was hacked and the other because it was lost. New cards were issued with new numbers. My total cards remained the same but the new numbers would make it appear that I have additional credit cards which is not the case. I believe that is unfair.
Hi Robert, we can certainly understand your frustration with your insurance score impacting your rates. If you’d like to discuss this in detail, please call our Customer Service Department at 1-877-896-9320 and one of our representatives can review it with you. Thank you!