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What Is an Insurance Score?

A credit-based insurance score is a three-digit score your insurance company assigns to you based on your credit report. Most insurers consider customers with high insurance scores as less likely to file an insurance claim, so they typically offer them lower premiums. Conversely, they offer customers with low insurance scores higher rates.

Insurance scores and credit scores are similar but different. Insurance companies use insurance scores to determine the likelihood of you filing a claim and making regular payments, while lenders use credit scores to predict the likelihood of you repaying what you borrow.

Keep reading to see how insurance scores work and why they matter.

How Does an Insurance Score Work?

Insurance companies create insurance scores to better understand the risk profile of a potential or existing customer. To calculate your insurance score, your insurance company pulls your credit report from one or more national credit bureaus, such as Equifax, Experian, Transunion or LexisNexis. The scoring process considers your credit history length, how many credit accounts you have and your total outstanding debt, among other factors.

The general idea behind credit-based insurance scores is that a person who responsibly manages their finances will also responsibly manage their insurance policies. According to the Insurance Information Institute (III), somebody with a low insurance score is statistically more likely to file an insurance claim. Since your credit report is tied to your financial habits, your credit report helps insurers assess your risk profile.

Your insurance score is an important consideration during the underwriting and rating process. The underwriting process helps determine whether you will qualify for a policy through that insurance company. The rating process calculates what premium you will pay based on your risk. Since high insurance scores suggest lower risk, these customers tend to have lower premiums. Conversely, low insurance scores suggest higher risk, resulting in higher premiums.

However, this does not mean that a high insurance score directly causes a low premium — the relationship is only a correlation. Insurance scores are only one of several factors that insurance companies consider when determining your premiums. Auto insurers may also consider your vehicle's model and accident history when determining your rates. Home insurance companies may look at your home's age, location and vulnerability to natural disasters and more.

The idea behind insurance scores is that a person who responsibly manages their finances will also responsibly manage their insurance policies.

What's the difference between an insurance score and a credit score?

Insurance scores and credit scores share several similarities Both are based on your credit report and they determine rates. Below, we highlight key differences and similarities.

Insurance score

Credit score

Used by insurance companies

Used by financial institutions (usually lenders and credit card companies)

Helps insurance underwriters predict an individual's risk of insurance losses

Helps financial institutions predict the likelihood of an individual repaying debt fully and timely.

Scores typically range from 200 to 997

Scores typically range from 300 to 850

Scores help indicate your overall risk

Higher scores typically result in lower rates (usually monthly premiums for insurers or interest rates for lenders)

Score calculated based on information from your credit report (e.g., outstanding debt, delinquencies, credit history, timely payments)

Why Is an Insurance Score Important?

Credit-based insurance scores help create pricing that more accurately reflects the risk a customer poses. According to the III, those with high insurance scores are less likely to file a claim, which is why these customers tend to pay less in insurance premiums. Those with good financial habits are rewarded with increased savings.

High insurance scores suggest lower risk, so these customers tend to have lower premiums.

Without credit-based insurance scores, a low-risk customer may share the cost of insuring their higher-risk fellow policyholder. Insurance scores help ensure that your good financial habits are factored into your insurance premiums.

How Are Insurance Scores Calculated?

Insurance companies will either have an in-house insurance scoring model or they will purchase models already developed by a third-party credit vendor, such as the Fair Isaac Corporation (FICO), TransUnion or LexisNexis. Insurance scores will generally range from 200 to 997. However, the calculations for producing that score and the score range will vary based on what scoring model is used. Also, there may also be a different scoring model based on the type of policy. For instance, a home insurance policy is scored differently from an auto insurance policy.

Factors calculated into insurance score models include:

  • Payment timeliness

  • Public records (e.g., bankruptcies, foreclosures, liens)

  • Number of inquiries

  • Number of open accounts

  • Total outstanding debt

  • Credit utilization ratio (how much you owe divided by your total credit limit)

  • Length of credit history

Here is an example of the criteria FICO uses for insurance scoring:

criteria fico score uses for insurance scoring

Source: FICO

Not considered in an insurance score

Your insurance score will typically not consider:

  • Race or national origin

  • Religion

  • Sex

  • Marital status

  • Age

  • Salary or occupation

  • Location

  • Other information outside your credit report

The above factors are generally not considered in your insurance score but some may still be considered during the insurance underwriting and rating process. Auto insurance companies may still consider age because younger drivers tend to have less driving experience and more accidents. Home insurance companies may consider location because certain areas are more prone to crime or natural disasters than others.

What Is Considered a Good Insurance Score?

On a range from 200 to 997, a score of 770 or higher is typically considered a good insurance score. Insurance companies tend to look unfavorably on scores of 500 and below. However, the exact threshold for poor, fair and good scores will vary by the insurance company and the scoring model used.

Score range

Rating

770-997

Good

500-770

Fair

500 and below

Poor

Low insurance scores suggest higher risk, resulting in higher premiums.

Ways To Improve Your Insurance Score

Here are some tips to improve your insurance score (and your credit score):

  • Clear up errors on your credit report: Most errors reported to a credit bureau are addressed within 30 days. If it improves your score, you may ask your insurance company to re-underwrite and re-rate you, which could lower your insurance premium. Some insurers may even re-score you and exclude disputed information while the credit bureau investigation is ongoing.

  • Pay your bills timely: Showing a history of paying your bills in full and on time may positively affect your insurance score.

  • Maintain a low balance: Generally, you will want to avoid high outstanding debt when possible.

  • Pay down debt: If you have high outstanding balances, chipping away at your debt may improve your score over time.

  • Keep a low credit utilization: Your credit utilization ratio compares your outstanding balance to your total available balance. Insurance scoring looks at low credit utilization ratios more favorably.

  • Consult a professional: Consider meeting with a financial planner to learn smart financial habits or a debt consultant to better manage your debt.

  • Be patient: Delinquencies and inquiries may take years to fall off your credit report. Being patient while maintaining good financial habits may lead to higher credit scores and insurance scores over time.

Insurance Score FAQs

What is an insurance risk score?

An insurance score is a score that your insurance company assigned to you based on your credit report details, such as your outstanding balance and payment history. Individuals with higher insurance scores tend to be lower-risk customers and typically enjoy cheaper rates. Conversely, a low insurance score suggests a higher risk to the insurance company, often leading to higher insurance premiums.

What can make an insurance score decrease?

Since insurance scores are based on your credit report, unfavorable financial behaviors can lower your insurance score. These behaviors include raising your overall debt, missing payments and increasing your credit utilization ratio (how much you owe divided by your credit limit).

Do insurance scores affect all policy types?

Yes your insurance score will be derived differently for each type of policy, but it will always affect your rate. Different policies, such as home and auto, use insurance score models during the underwriting process. How your credit-based insurance scores are calculated differ based on which model is used.

Do all states use insurance scores?

Some states, like California, Hawaii, Maryland, Michigan and Massachusetts have banned or restricted the use of credit scores in determining insurance premiums. When allowed, a credit score needs to be only one factor among many in calculating rates; It cannot be the single determining factor. Be sure to check your state insurance department for more information about insurance scoring in your area.

What is a good score for insurance?

A score of 770 or higher is generally considered a good score, based on a score ranging from 200 to 997. A score of 500 or lower is generally considered a poor score.

What is the difference between an insurance score and a credit score?

Insurance scores are typically used by insurance companies to determine the likelihood of an individual filing an insurance claim while credit scores are typically used by lenders to predict the likelihood of a borrower repaying their debt. Both insurance scores and credit scores are used to assess an individual's risk based on their credit report.

Find the Coverage You Need at the Price You Want

Different insurance companies may use different insurance scoring models when determining your premiums, and you never know which model will rate you better unless you shop around. SmartFinancial can help find the coverage you need at the best price. Whether it's home, auto, health or life insurance, we compare rates and coverages in your area among our 200+ insurance partners. Just enter your zip code and answer a few questions to get started.

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