Credit-based insurance scores are important because insurers use them to determine the likelihood of you filing an insurance claim, which affects your car insurance premium in most states.
How is Insurance Rating Calculated?
Insurance companies use several factors to determine your insurance rating. Many of these factors overlap with those used to determine your credit scores. While some states require insurers to make their insurance rating methods public, not all states do. Some key factors that may affect your insurance rating include your past credit performance, outstanding debts, length of your credit history, and your pursuit of new credit. The specific factors that affect insurance scores will depend on your insurance company’s policies, the state you reside in, and any third-party companies that the insurer works with for credit information.
What is a Good Insurance Score?
Like credit scores, insurance scores improve as they increase. According to LexisNexis, a risk-focused data analytics company, insurance scores range from 200 to 997 on their scale. Scores above 775 are considered good.
How to Improve Your Insurance Score
Fortunately, there are many ways to improve your insurance score. In most cases, credit score enhancement techniques will also boost your insurance scores. The fundamental approach is to handle credit and bills with as much financial responsibility as possible.
Here are some strategies that may help improve your insurance score:
- Pay bills on time: Avoid late payments and missed payments. If you can afford to pay the full amount due each month instead of just the minimum, that may also help keep your credit utilization ratio low.
- Keep credit utilization low: Credit utilization refers to the amount of available credit you are using. A good target number is to keep this ratio below 30 percent of your total available credit.
- Pay off debts quickly: If you have credit card debt, a car loan, or other debts outstanding, you may want to prioritize paying them off as quickly as possible.
To see your credit scores and track when and how much they’ve improved, you can go to www.annualcreditreport.com for free copies of your credit reports. By using this link, you will get copies of your credit reports from all three major credit bureaus. If your credit scores are improving, it’s likely that your insurance scores are too. Due to the pandemic, you are allowed to access your credit reports weekly through this site instead of annually, as was the case previously. This measure will remain in effect until December 2023.
Shopping around may help you find the best rates, even if your credit history is less than ideal.
Paying bills on time with your current credit obligations may help improve your credit scores and thereby enhance your insurance scores.
Review any available discounts offered by your insurance company to ensure you are taking advantage of any discounts for which you qualify.
Do Insurance Scores Affect All Types of Policies?
In most states, insurance scores are used to determine your premiums for car and home insurance. However, there are some states with laws limiting the use of credit history to calculate premiums. Hawaii and Michigan prohibit the use of credit history in auto insurance rating, while Maryland prohibits it in homeowners insurance rating. California and Massachusetts ban the use of credit history in both auto and home insurance rating.
Why
Could my insurance scores be low?
Your low insurance scores could be due to several factors. Your insurance rating depends largely on the same factors that your credit scores are based on, which is a good place to start. If you have a history of late payments on your consumer debts, this could affect your credit rating. Defaulting on a loan or declaring bankruptcy may also lead to a decrease in credit scores, although after a certain number of years, it may be removed from your credit report. You may also have low insurance scores if you frequently use your credit cards or if your credit utilization ratio is higher than 30 percent. If you’re unsure why your credit scores are low, requesting an official credit report or consulting with a financial advisor may be a smart next step.
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