Did you know your insurance score might be costing you hundreds of dollars on your premium? Most insurance companies use your credit history to decide not only whether to sell you insurance but also how much you’ll pay for it. I’ve found this hidden connection between credit and insurance rates surprises many people — yet according to FICO, many insurers rely on these credit-based insurance scores in states where it’s legally allowed.
Research shows these scores aren’t just arbitrary numbers. Statistical analysis indicates people with lower insurance scores are actually more likely to file claims. In most states, insurers can use your credit-based insurance score to determine your premiums, especially for auto insurance. However, they can’t use personal information like your race, gender, age, or income — only what appears in your credit report.
If you’re confused about how this all works and feeling frustrated by unexplained premium costs — don’t worry, you’re not alone. In this article, I’ll break down what insurance scores really are, how they differ from regular credit scores, and most importantly, how they determine what you pay for coverage. No complicated terms, no fluff — just straightforward information that helps you understand what’s happening behind the scenes with your insurance rates.
What Is an Insurance Score and How It Differs from a Credit Score
“In most states, insurers can use your credit-based insurance score to determine your premiums. Your credit-based insurance score is not the same as your regular credit score.” — National Association of Insurance Commissioners, Regulatory support organization that establishes standards for the insurance industry
An insurance score represents your predicted likelihood of filing an insurance claim that could cost the insurer more than they collect in premiums. [Ranging from 200 to 997](https://www.investopedia.com/terms/i/insurancescore.asp), these numerical ratings derive from information in your credit report. While commonly called “credit-based insurance scores,” they function quite differently from traditional credit scores.
Insurance scores primarily assess risk rather than creditworthiness. FICO and other data analytics companies develop these proprietary scoring models specifically for insurance companies. The higher your score, the lower your perceived risk – scores above 770 are considered favorable, while those below 500 are viewed as poor.
The fundamental difference lies in what each score predicts. Credit scores forecast the probability you’ll miss bill payments, whereas insurance scores predict the likelihood you’ll file claims that result in losses for the insurer. Furthermore, insurance scores often place greater emphasis on payment history (40% versus 35% for credit scores) and less weight on credit mix (5% versus 10%).
Unlike credit scores that consumers can easily access, insurance scores remain confidential. You generally cannot check your insurance score, though your FICO credit score might give you a general idea where you stand since both utilize similar credit information.
Moreover, insurance scores cannot use personal information including:
- Race, color, or national origin
- Religion or gender
- Marital status or age
- Income or employment history
- Location of residence
What makes insurance scores particularly impactful is their influence on premiums. For instance, a poor score could increase auto insurance costs by approximately $300 annually, potentially costing $3,000 over ten years. Nevertheless, insurers never use these scores in isolation – they consider them alongside other factors like claims history and vehicle reports when determining rates.
Insurance scoring benefits consumers with good credit habits since it helps prevent low-risk customers from subsidizing those presenting higher risks. This system allows insurers to match premiums more accurately with the level of risk each individual customer might pose.
How Insurance Scores Are Used to Determine Premiums
“An insurance company can only use your credit-based insurance score as one factor in its underwriting process. It will be considered with several other factors that vary by insurance type.” — National Association of Insurance Commissioners, Regulatory support organization that establishes standards for the insurance industry
Insurance companies rely heavily on your insurance score as a pivotal factor when setting premium rates. First and foremost, insurers use these scores in two critical processes: **underwriting** (determining eligibility for coverage) and **rating** (calculating premium amounts).
The financial impact is substantial. Poor credit can increase auto insurance costs by up to 106%, while homeowners with poor credit pay approximately 77% more on average than those with excellent credit. Nationwide, individuals with lower scores pay between $150 and $200 extra each month for their auto and home insurance.
Statistical evidence confirms the widespread practice. A 2017 Arkansas insurance department report analyzed 3.4 million personal lines policies and found that in nearly 55% of cases, credit information resulted in decreased premiums. Conversely, only 19.8% saw premium increases, while 25.7% experienced no change. Essentially, policies receiving premium decreases outnumbered those with increases by 2.76 to 1.
By insurance type, the data reveals:
- Homeowners insurance: 56.6% of policies received lower premiums due to credit scoring, with only 16.5% experiencing increases
- Auto insurance: 57.4% of policies benefited from reduced premiums, though 23.4% faced higher costs
Regional variations exist as well. In Michigan, homeowners with excellent credit pay approximately 70% less for coverage than those with poor credit, while drivers enjoy 59% savings.
Consequently, insurers argue this practice allows them to match premiums more accurately with individual risk levels. Their goal is to prevent lower-risk customers from subsidizing those with higher risk profiles.
Beyond premium determination, your insurance score can affect policy renewal or cancelation. A declining score might put your policy at risk of non-renewal or trigger rate increases at renewal time. Indeed, insurance scores influence not just how much you pay but whether you maintain coverage at all.
Factors That Influence Your Insurance Credit Score
Your insurance score is calculated based on specific elements from your credit history. Unlike traditional credit checks, insurance companies look at select components to predict your likelihood of filing claims. Understanding these factors can help you improve your score and potentially lower your premiums.
First and foremost, payment history carries the heaviest weight at approximately 40% of your insurance score. Timely bill payments demonstrate financial responsibility, which insurers associate with fewer claims. Outstanding debt follows at 30% of your score, reflecting how much you owe compared to your available credit.
Additional factors include:
- Credit history length (15%) – How long you’ve been in the credit system
- Pursuit of new credit (10%) – Recent applications for new accounts
- Credit mix (5%) – The variety of credit types you maintain
Major negative items significantly impact your score. Bankruptcies, collections, foreclosures, and liens typically lower your insurance credit score. Insurers also examine the number of open credit lines and the name of the first person listed on the policy.
Notably, insurance companies cannot use certain personal information when calculating your score. Race, religion, gender, marital status, age, income, occupation, residence location, and interest rates cannot factor into their calculations. Even medical debts in collection and credit checks related to insurance coverage inquiries cannot be used against you.
Insurance companies typically weigh recent history more heavily than older credit information. Additionally, most companies protect consumers from score penalties resulting from major illness, injury, death of a spouse/parent/child, temporary job loss, divorce, or identity theft.
Ultimately, each insurance company employs its own proprietary formula. This explains why a score considered “good” by one insurer might not qualify for the best rates with another. For one company, 750 might secure their lowest premium, whereas another might require a higher score for the same benefit.
Conclusion
Understanding insurance scores undoubtedly plays a crucial role in managing your insurance costs. Throughout this article, we’ve seen how these credit-based scores significantly impact what you pay for coverage. Most consumers remain unaware that their credit habits directly affect their insurance premiums, potentially costing hundreds or even thousands of dollars over time.
The statistical evidence clearly demonstrates this impact – poor credit can raise auto insurance costs by up to 106% and homeowners insurance by approximately 77%. Therefore, maintaining good credit practices benefits not just your borrowing power but also your insurance expenses.
What makes this particularly important is that unlike regular credit scores, you generally cannot access your insurance score. Nevertheless, you can still take control by managing the factors we discussed – payment history, outstanding debt, credit history length, new credit applications, and credit mix. These elements collectively determine how insurance companies assess your risk level.
Remember that insurance companies must follow specific regulations. They cannot use personal information like race, gender, or income when calculating your score. Additionally, most insurers provide protections for consumers experiencing major life events like illness, job loss, or divorce.
While insurance scoring allows companies to match premiums with individual risk profiles more accurately, knowledge remains your best defense against unnecessarily high rates. By understanding this hidden connection between credit and insurance costs, you can take practical steps to improve your financial standing and potentially reduce your premiums over time.
FAQs
Q1. How does an insurance score differ from a credit score? An insurance score predicts the likelihood of filing insurance claims, while a credit score forecasts the probability of missing bill payments. Insurance scores emphasize payment history more heavily and are not accessible to consumers, unlike credit scores.
Q2. What factors influence my insurance score? Your insurance score is primarily influenced by payment history (40%), outstanding debt (30%), credit history length (15%), pursuit of new credit (10%), and credit mix (5%). Major negative items like bankruptcies and collections can significantly impact your score.
Q3. How much can a poor insurance score affect my premiums? A poor insurance score can substantially increase your premiums. For auto insurance, it could raise costs by up to 106%, while homeowners with poor credit may pay approximately 77% more on average than those with excellent credit.
Q4. Can insurance companies use personal information to calculate my insurance score? No, insurance companies are prohibited from using personal information such as race, religion, gender, marital status, age, income, occupation, or residence location when calculating your insurance score. They can only use information from your credit report.
Q5. How can I improve my insurance score to potentially lower my premiums? To improve your insurance score, focus on maintaining a good payment history, reducing outstanding debt, avoiding unnecessary new credit applications, and maintaining a healthy mix of credit types. Remember that recent credit history is typically weighted more heavily than older information.
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