Confused between the differences of an insurance score and a credit score? They are similar (both three-digit numbers) and often wrongly used interchangeably – however, there are big differences. Let’s help you learn about the two and how it relates to your insurance rate and premium price.
Is an insurance score the same as a credit score?
No. A credit score and insurance score may seem the same, but a credit score is used to show lenders how likely you are to repay your debt. An insurance score is used to show insurance providers how likely you are to have a claim. But your credit report does affect your insurance score. That is why you will often hear it referred to as a credit-based insurance score.
What is a credit-based insurance score?
A credit-based insurance score is another phrase for insurance score. It used to be common practice for insurance companies to solely base insurance rates on driving record, age, experience and condition of the property insured to determine a consumer’s likelihood of filing a claim. Now, it is more common practice for most states to have a credit-based insurance score also factored in. This is good for most, as it typically results in a lower premium for many customers. Studies have shown that most consumers’ whose rates were determined using a credit-based insurance score actually had lower premiums than when the insurance score was not a factor.
Why do insurance companies use credit scores?
Insurers use credit score ratings as a factor in your credit-based insurance score because it helps predict the total number of claims a person (or group of customers) are likely to claim. Your insurance score helps provide a proper premium amount based on the overall risk.
How are insurance scores determined?
If you’re wondering how your insurance score is calculated, here is a breakdown of factors that play into your insurance score.
- Payment history — How well you have paid on your outstanding debt in the past
- Outstanding debt — How much debt you have now
- Credit history length — How long you’ve had a credit line
- Pursuit of new credit — If you have applied for new lines of credit recently (this doesn’t include insurance quotes)
- Credit mix — The types of credit you have (credit card, mortgage, auto loans, etc.)
Will insurance quotes affect my credit score?
No, getting insurance quotes will not affect your credit score. Insurers do what is known as a “soft pull,” and while you can see these requests on your credit report, know that lenders cannot see them. It doesn’t affect your credit score in any way.
While your credit score can affect whether you are approved for a loan or line of credit based on your score, your insurance score will not cause you to be denied coverage based on your insurance score alone. It is simply a factor in the overall decision of your insurability and your premium rate. The items below are not on your credit report:
- Race, color, national origin
- Marital status
- Income, occupation or employment history
- Location of residence
- Any interest rate being charged
- Child/family support obligations or rental agreements
- Certain types of inquiries on your credit report like account review inquiries, employment inquiries, promotional inquiries from credit companies, etc.
- Whether a consumer is participating in credit counseling of any kind
Where can I find my insurance score?
You should be able to find your insurance credit score listed on your credit report. You can often see details about your credit score, including your insurance score through credit karma, one of several free credit-monitoring services.
Also, The Fair and Accurate Credit Transaction Act of 2003 lets consumer obtain a free credit report annually from the three big guys: Equifax, Experian and TransUnion. Visit www.annualcreditreport.com once every 12 months to check all three reports.
What is considered a good insurance score?
The insurance score scale is a range between 200 and 997. It works like the credit score range in the same way that the higher your score, the better your score. A good insurance score is in the range of 776 and higher.
How can I improve my insurance score?
You can improve your insurance score in the same ways you can improve your credit score. Pay your bills on time, limit the amount of debt you take on and don’t have too many credit cards. There are plenty of free online resources to help guide you through increasing your credit score, which can also help increase your insurance score.
Still confused? Contact your local Alfa® agent for more details.