Car insurance companies use auto insurance scores, also called credit-based insurance scores, to determine your insurance rates.
Below, we’ll dive into what auto insurance scores are, what role credit scores play and how you can improve them.
What is an Auto Insurance Score?
Auto insurance scores are created by insurers to measure the likelihood of you getting into an accident or filling out a claim. Insurers pull information from credit reports and your insurance claims history to calculate these scores. Auto insurance scores are one of the factors used to determine your car insurance rates.
All U.S. states—except Hawaii, California and Massachusetts—consider your credit score when determining your car insurance rates.
What’s the Difference Between Auto Insurance Scores and Credit Scores?
Credit scores are based on information from your credit report and are used to determine the likelihood that you will pay back your credit accounts on time. Specifically, credit scores inform decisions regarding things like interest rates, repayment periods and loan amounts.
Auto insurance scores also use information from your credit score, although they may not use all of the information and it may be calculated differently.
How Do Auto Insurance Scores Impact My Rates?
Typically, having a higher insurance score and a positive driving history will result in a lower insurance rate, similar to how a higher credit score will result in a lower interest fee.
However, these aren’t the only factors used to determine insurance rates. For example, someone with a high insurance score, but a poor driving history can still have a high rate. Not every insurance company uses the auto insurance score, but most do consider factors used to calculate auto insurance scores when determining rates.
Car insurance companies have discovered that drivers with low credit scores tend to file more claims—an observation that has since been supported by a Federal Trade Commission report.
Each insurance company has its own approach to calculating insurance scores, so you may see the score vary between companies.
The Zebra’s 2019 State of Auto Insurance report found that drivers with poor credit typically pay more than twice as much for car insurance compared to those with exceptional credit. The report also found you can save 17 percent on your insurance rating when you increase your credit score by one tier.
How Can I Improve My Insurance Scores?
You can improve your auto insurance scores in the same ways you would improve your credit score. Here are a few ways you can achieve both a good insurance score and a good credit score:
- Make credit payments on time
- Keep accounts open
- Keep your credit utilization down
- Carefully manage a budget and pay down existing debt
- Check for and dispute errors on your credit report
Getting mistakes removed from your credit report is an important way to improve your credit score and, in turn, your auto insurance score. Make sure to check your credit report regularly for mistakes—you can obtain one free copy per year of your credit report from each of the credit bureaus via AnnualCreditReport.com.
The credit consultants at Lexington Law can help you review your credit report and learn what you need to do to clean up mistakes found on your credit report to ensure your information is fairly and accurately reported. Contact us today to learn about how credit repair can help you work towards your credit goals.