Your Credit Score Can Affect Your Insurance Rates and Renewals

Your Credit Score Can Affect Your Insurance Rates and Renewals

March 19, 2024

Just like your credit score impacts your ability to secure a loan or credit card, your credit-based insurance score impacts your insurability and premiums.

Consumer credit scores

Your consumer credit score is a numerical score tabulated by the three major credit bureaus: TransUnion, Experian and Equifax. Consumer credit is based on several factors, like on-time payments and credit card and loan debt ratios.

Lenders use your consumer credit score to determine whether you’ll repay your loan. 

Credit-based insurance scores

Your credit-based insurance score isn’t the same as your consumer credit score. Insurance companies tabulate your credit-based insurance score based on whether you manage your money responsibly and other factors. They then use that information to create a profile of your likelihood to file a claim.

Your credit-based insurance score determines:

  • Whether you get insurance coverage
  • How much you pay
  • Whether your policy gets canceled or renewed
  • Whether your rate increases

For example, let’s say you’re applying for auto insurance. If you have a lot of delinquent accounts or a high debt ratio, your insurance score will be lower, putting you in a higher risk category. Add a few insurance claims, and you’ll likely end up in a “hard-to-place” risk category.

A low score can mean a higher price for insurance

Most homeowners and drivers are required to have insurance. Individuals with adverse risk ratings usually turn to the residual market or an assigned risk pool until negative marks come off their record. But that comes at a high cost. In some states, customers with low scores have paid over $1,000 more than those with good scores, according to an article in NerdWallet.

A seasoned independent insurance agent can help you find a company specializing in hard-to-insure clients. They can also help you devise a plan to get out of the risk pool. It’s not impossible, but it will take a bit of work.

Information used to calculate your insurance score

Things insurance companies do not use when calculating your credit-based insurance score:

  • Race
  • Color
  • Religion
  • National or ethnic origin
  • Gender identity or transgender status
  • Marital status
  • Disability
  • Sexual orientation
  • Age (Insurance companies might use age data to determine the statistical likelihood of an accident, but not to tabulate insurance scores.)
  • Address (Insurance companies use ZIP codes and geographical data to assess risk in other ways, but not to tabulate insurance scores.)
  • Occupation, job title or employer
  • Dates employed, employment history or salary history

Things insurance companies might use to tabulate your credit-based insurance score:

  • Outstanding debt and available credit
  • Credit history and payment patterns
  • Late payments and past due amounts
  • Recent applications for credit
  • Types of credit in use

Even though your credit-based insurance score differs from your consumer credit score, you can use similar techniques to improve both.

Improve your insurance score by working on your credit score

According to Experian, your FICO Score 8 is impacted by five main factors:

  • Payment history — How regularly you pay your bills on time accounts for 35% of your score.
  • Amount of revolving debt or credit utilization ratio — The amount of debt you have relative to how much is available accounts for 30% of your score.
  • Credit history — How long you’ve had credit (oldest and newest), including the average age of all open accounts, determines 15% of your score.
  • The number of hard inquiries or new accounts — How many accounts you’ve recently opened controls 10% of your score.
  • Types of credit — Using various kinds of credit (like installment loans and credit cards) accounts for 10% of your score.

If you work toward increasing your overall credit score, keep your driving record clean, and reduce or eliminate your claims, you should see changes over time. For ways to order your consumer credit report for free, visit the Federal Trade Commission's consumer advice website.

Finding your insurance score

Unlike your consumer credit score, your credit-based insurance score isn’t reported to credit bureaus every month. However, there are a couple of ways to find out your insurance score:

A handful of states regulate how credit history and scores can be used when determining rates, denials, renewals and cancellations. They are California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Utah and Washington.

Call your agent

Before your next renewal, talk to your insurance agent about how they use credit-based insurance scores. These scores can play a big role in your overall financial wellness.