If you follow our blog, you have undoubtedly learned that credit affects your ability to find reasonable car loans and insurance rates. Although this fact remains true, the advent of the Auto Insurance Score (AIS) has created a new level of creditworthiness for potential borrowers.
Like a traditional credit score, the AIS is graded on a scale to determine a borrower’s risk. While a traditional credit score ranges from 300-850, the AIS ranges from 150-950.
Why do we need another credit score?
You may be wondering why you have to deal with yet another credit score. Isn’t one enough? Unfortunately, insurance companies say no. Developed by the Federal Trade Commission, the AIS scoring model targets risk by using your credit accounts to estimate insurance liability (e.g., likelihood of accidents, frequency of claims filed, their costs, etc.) Based on this information, the insurance companies place you in a risk pool to determine the premium you’ll pay. The higher the risk, the higher the premium.
Does the AIS model use my driving record?
Ironically, no. While the AIS is meant to measure risk, your track record behind the wheel is not a factor in the scoring model. Instead, it uses past behavior to predict your level of risk and overall cost to the insurance company. Considered items include your credit utilization ratio, credit history, credit types (e.g., auto loans), and past mistakes such as missed payments, bankruptcies, etc.
Does every auto insurance company use the AIS?
According to CreditKarma.com, a study conducted in 2005 revealed that fifteen big-name insurers used the AIS—accounting for 72 percent of the total market share. It’s no secret that the AIS model has gained popularity in the insurance world. Every driver should be aware of this fact.
My AIS is lower than my regular credit score. What can I do to even things out?
Although the AIS model is different than a traditional credit score, many of the same components are used to tally both. Consider the following credit repair methods to improve both scores simultaneously.
The epitome of a healthy credit score lies in managing these five components: payment history, debt utilization, credit length, new credit, and diversification. The good news? These same factors are likely to help your AIS as well. Focus on complete credit repair to improve your auto reputation.
Not everyone is a fan of the AIS method. Some critics call it unfair and prejudicial, especially since your driving record is not a scoring factor. Luckily, it’s possible that some insurance carriers agree with this assessment. Shop around for quotes before deciding on a provider. A little research could help you score a better rate.
Get an Auto Loan.
It may seem counterintuitive, but the act of securing a new auto loan could actually raise your Auto Insurance Score. The AIS model relies on new credit in its calculations; experience with an new, auto-related loan is bound to have a positive effect. Still unsure of the next step? Talk to a professional to help assess your credit and determine your options.