What is the Difference Between Your Credit Score and Insurance Score?

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What is the Difference Between Your Credit Score and Insurance Score?

Insurance companies consider credit report information, along with other factors, such as driving experience, age, accidents, and previous claims, to develop a picture of a potential customer’s risk profile and to establish premium rates. Each insurer has a different way of calculating this information, but in general, the better your credit report and insurance score, the better your rates.

Let’s take a few moments to learn the difference between your credit score and insurance score and how they each affect your insurability and your insurance premiums.

Credit Score

Your credit score is a number that represents your overall credit worthiness. It includes everything you have done credit-wise, from your credit cards to your bill paying, rental, and mortgage and loan history. Think of a credit score like your permanent financial record. Whether you are buying a house and need a mortgage, applying for a new credit card, or looking to purchase a car and auto insurance, your credit score will factor into all these decisions.  Creditors use this score to help determine what kind of financial risk you would be and whether to grant credit.

Insurance Score

Your insurance score, which is often called a credit-based insurance score, is based in part on your credit score, but it also contains much more information that pertains to your insurance history. In order to be approved for auto or homeowners insurance, an insurance company looks at information that will give the insurer an idea of your insurance history and the likelihood that you will file an insurance claim. Aside from demographical information like age, gender, location, income, etc.all of which are factors that, in part, determines your insurance rates, what is most important to insurers is your credit-based insurance score. This is a number that takes many things into consideration, including:

  • your credit score
  • outstanding debt
  • collections
  • the number of insurance claims you have made in the past
  • DMV points
  • your timeliness with premium payments

Unlike your credit score, your insurance score does not take into account income.  It simply helps insurance companies determine whether or not they should take on the risk of insuring you and what premium rates to apply.  An insurance company will not deny you coverage based on this score. If it’s high, you’ll end up with higher rates, but you won’t necessarily be turned away.

How can I improve an unfavorable insurance score?

The best and easiest way to improve both your credit and insurance score is to become and stay credit-worthy.  While there are some things that are out of your control, like having a short credit history, for instance, you can generally improve your insurance score by making payments on time, keeping your accounts in good standing, and avoiding numerous credit applications in a short period of time.  Make sure you understand how much credit you have available. If you are using all or nearly all of your available credit, it could be regarded as an unfavorable factor.

Changing your driving habits, paying your premium(s) upfront and making no claims on your insurance can help to rebuild your insurance score. Remember, these numbers do not reflect on you personally.  A bad score does not mean you’re a bad person.  Your insurance and credit scores reflect the risk you pose to companies considering taking it on, whether it is for a credit card or for car or homeowners insurance.

Contact us today

The experienced professionals at Foundation Insurance Group, located in Falls Church, Virginia, serving the Washington D.C. metro area and St. Matthews, Kentucky, serving the greater Louisville metro area, are happy to answer your questions, educate, and review your current homeowners and auto policies and make recommendations to limit your exposures. Contact us today.

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