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If you’ve ever taken out a loan, you’re probably familiar with credit scores. These numbers take into account your financial history to determine how likely you are to repay a loan.
Insurance scores are similar. An insurance score is a measurement insurance companies create to evaluate how likely you are to file a claim for a loss.
In both cases, the ratings are designed to measure the risk a company takes in issuing you a loan or insurance policy. In this article, we’ll go over how insurance scores work and what constitutes a good insurance score.
Here’s everything you need to know about insurance scores and how they work:
- What is an insurance score?
- Insurance score range
- How is an insurance score calculated?
- Insurance score vs. credit score
- How to check your insurance score
- How to improve your insurance score
What is an insurance score?
An insurance score is a three-digit number that insurance companies use to predict how likely a potential future customer is to file a claim. Insurers consider this score when determining whether to offer you an insurance policy and how much your insurance premium payments will be.
Insurance companies employ proprietary algorithms to develop insurance scores, so each company may have a different way of calculating your score. You may run into insurance scores when applying for a homeowners insurance policy or an auto insurance policy.
Good to know: Insurance companies first developed insurance scores in the mid-1990s. Today, nearly all auto insurers and the vast majority of homeowners insurance companies use insurance scores to underwrite their policies.
People with lower insurance scores are deemed to pose a higher risk to the insurance company, and thus are charged higher rates. People with higher scores are presumably lower risk, and typically pay lower rates.
Your insurance score is based heavily on your credit report. The insurance industry has found — and Federal Trade Commission research has confirmed — that credit report factors correlate closely with the likelihood of filing insurance claims. The idea is that people who manage their credit and finances well are likely to maintain their homes and vehicles well, too.
States often have laws that dictate how insurance scores can be used and what factors they can consider. For example, the state of New Jersey prohibits insurance companies from considering unpaid medical bills as part of their insurance scores. Often, states prohibit insurance companies from using insurance scores as the sole reason for denying or canceling a policy. A few states outright ban or severely limit the use of insurance scores:
- California
- Hawaii
- Maryland
- Massachusetts
- Michigan
- Washington
The insurance score is generally one of a variety of factors that go into determining the rate you’re offered.
A car insurer may also take into account the make and model of the vehicle you’re insuring, the number of miles you drive per year, your ZIP code, and the age of the people who will drive the car. A home insurer may factor in the age of your home, your area’s risk of natural disasters, your access to fire department services, and the size of your home.
Insurance score range
Insurance scores generally run between 100 and 999. Ranges can be slightly different from company to company; for example, the insurance company Progressive uses a range between 200 and 997.
Higher scores may mean you’re less likely to file a claim, and thus pose a lower risk to an insurance company — all of which can add up to lower costs on your insurance policy. Lower scores could mean you’re more likely to file a claim, and pose a higher risk.
| Score | Rating |
|---|---|
| 100-500 | Poor |
| 501-625 | Below average |
| 626-769 | Average |
| 770+ | Good |
How is an insurance score calculated?
Insurance scores typically take your credit score into account. In fact, your insurance score may be referred to as a credit-based insurance score.
Insurance companies may also consider other factors, including your insurance claim history and your car accident history. While insurance companies typically don’t disclose the specific factors and weightings used in their scores, FICO uses the following to determine credit scores:
| Payment history, or how often you make payments on time | 40% |
| Amount of outstanding debt | 30% |
| Length of credit history | 15% |
| How often you’ve applied for new credit | 10% |
| Credit mix, or how many different types of credit you have | 5% |
If you have a long track record of making on-time payments, a variety of financial accounts in good standing, and a significant amount of unused credit available, you’re likely to have a high insurance score. However, if you have a spotty payment history and frequently make late payments, have maxed-out credit cards, and have applied for numerous loans recently, you’re likely to have a low insurance score.
Personal information is not allowed to be used when calculating your insurance score. The following are not permitted to be factored in to a credit-based insurance score:
- Race, color, or national origin
- Religion
- Age
- Gender
- Income
- Location
- Child or family support
- Public assistance income
While personal information isn’t part of your insurance score, some of these factors may ultimately play a role in the rate you’re offered on products like auto insurance. Car insurance companies may use your age and gender in particular to calculate your premiums.
Insurance score vs. credit score
While insurance scores are based heavily on your credit score, they’re not the same thing.
Lenders primarily use credit scores to determine how likely you are to repay a loan. Insurance scores are used to determine how likely you are to file a claim. An insurance score may weigh some factors used in your credit score, but omit others.
Insurance scores tend to focus on aspects that the insurance industry believes correlate more closely with filing claims:
- Total outstanding debt
- Length of credit history
- Late payments
- Bankruptcies and debt sent to collections
- Frequency of new credit applications
Insurance scores may also include other information, like your driving history, that aren’t included in a credit report.
How to check your insurance score
You may be able to request your insurance score from the individual insurance companies you’re considering.
First, ask a company that gave you an insurance quote whether it used an insurance score to calculate your rate. Then, you can ask for more details.
Each company will have its own way of calculating your score, so your score may be different from insurer to insurer.
Good to know: You can also request your insurance score file from LexisNexis, which collects data used by many insurance companies. LexisNexis allows you to request your “Consumer Disclosure Report” using an online portal.
Getting your credit score is easier. Under federal law, you are due a free copy of your credit report from the three main credit bureaus (Equifax, Experian, and TransUnion) each year. You can request these from AnnualCreditReport.com.
Since your credit information is a main factor in your insurance score, look carefully at all the information it contains and be sure there aren’t any errors. If you do find incorrect information on your credit report, like inaccurate balances or amounts listed as past due that are current, you can dispute it with the credit bureau and have it corrected. This may boost your score.
How to improve your insurance score
The best way to improve your insurance score is to build up your credit score. You can do things like:
- Make payments on time. Focus on paying all of your bills on time, every time.
- Catch up on debt. If you have accounts that are past due, get caught up and make your required payments in a timely fashion moving forward.
- Reduce your debt. Keep your credit card balances low, and work toward paying off other loans.
- Avoid new credit. Only apply for new credit cards or loans when they’re strictly needed.
You can also improve your insurance score by driving safely and avoiding the need to file insurance claims.
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