Insurance Credit Scores – What Are They and Why Do They Matter?

Written by on 9/22/2015 10:00 AM . It has 3 Comments.

Your credit score affects everything – from the interest rate you pay for a new car to the ability to get a credit account at your favorite department store. Typically, the better your credit score, the less money you’ll pay in interest. If your credit score tanks, you may find yourself denied or paying double-digit interest rates on everything.

Your credit score can also affect what you pay for insurance. The credit score that you’re used to – the one that can deny a mortgage or credit cards – isn’t the same one used by insurance companies, but it is a factor. Your insurance company uses insurance credit scores instead. Understanding what they are and why they matter could save you a lot of money on your homeowners or auto insurance policies.

WHAT IS AN INSURANCE CREDIT SCORE?

Insurance credit scores are different from the standard credit score. Instead of predicting whether you’ll pay your debts or can afford to make a big purchase, insurance scores do something different. They predict the likelihood that you will make a claim or get into an accident.

Like your standard credit score, insurance scores come in a range from bad to great.

Homeowners insurance scores range between 200 and 997. A good score is 770 or higher. A poor score is 500 or lower. Your score is determined by your financial credit report and your history of filing insurance claims.

Auto insurance score ranges fall between 300 and 997, depending on which company is creating the score. Fair Isaac Corporation stops at 900, and ChoicePoint goes up to 997. Anything over 700 is good, but a score of 800 or more is great. Again, your score is determined by your financial credit report and your past auto insurance history, including claims and accidents.

WHY DO INSURANCE CREDIT SCORES MATTER?

An insurance company will base your premium costs, in part, on your insurance credit score. The lower your score, the more you’ll pay. People with a fair score pay, on average, 32 percent more than those with an excellent score. If you have a bad insurance score, be prepared to pay twice as much.

You can help lower your insurance premiums in two ways: raise your credit score and reduce the number of claims you file. Fixing your credit score can be done in a few ways:

  • Pay your bills on time.
  • Use less credit and create less debt for yourself.
  • Don’t close old accounts.
  • Don’t open new credit accounts unless you have to. Each new line of credit brings your score down temporarily.

Every insurance company uses their own model and their own system to determine poor, fair, or excellent credit. It pays to get multiple quotes, even as you’re improving your score.

Charlotte Insurance is an independent insurance agency. This means that we work with multiple top-rated insurance companies and can find you the best price for your homeowners or auto insurance needs. Contact us if you have questions about your individual insurance credit score or if you want to find a better premium. We’re here to help.

Image courtesy of lendingmemo.com.

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