How Does Your Auto Insurance Credit Score Work? | CreditShout

How Does Your Auto Insurance Credit Score Work?

By Dawn Allcot / March 28, 2011

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We all know that a good FICO credit score gets you better interest rates for credit cards and loans, and can also save you money (and make life easier and more convenient) in a number of other ways, too.

But there are a few other three-digit numbers that can also impact your financial future. For instance, a high car insurance credit score can save you hundreds a year on your car insurance.

What is the Auto Insurance Score?

Just like credit scores, there are several different companies who calculate and provide auto insurance scores. Most auto insurance scores are derived from information from one or all of your credit reports issued by Experian, TransUnion and Equifax. But car insurance companies use different algorithms to determine your rates on car insurance or how “insurable” you are.

Your car insurance score is based on a range of 150 to 950, rather than 300 to 850, which is the range for most credit scores.

What Determines Your Car Insurance Rates?

An auto insurance credit score is just one aspect of how insurers determine your rates. They may use it exclusively, or they may look at many other factors. In some cases, insurers will use your credit score to directly calculate your auto insurance premiums. Sometimes, they will also factor in additional information not available on your credit report, including:

  • Age
  • Gender
  • Where you live
  • Annual mileage or commuter miles on your car
  • Driving record
  • Cost of the car
  • Safety features of the car
  • Marital status
  • Highest level of education completed
  • Occupation

According to Carrie Coghill, director of consumer education at FreeScore.com, your auto insurance score does not take into account your driving record or any information other than what’s in your credit report. She says, “It has become increasingly common for insurers to examine your credit data – your credit history and credit scores… However, insurers use credit data differently than lenders – they use different formulas (sometimes using the same information) to create their scores.”

Under the Fair Credit Reporting Act, auto insurers need your permission to check your auto insurance credit score.

Is the Auto Insurance Score Reliable?

While it may not seem fair, car insurance companies have found your credit score and financial habits to be indicative of whether or not you are a “good” car insurance risk. First, if you pay your other bills on time, you are likely to pay your car insurance premiums on time, as well.

Jonathan Walker of CarInsuranceComparison.org adds, “The idea is that people who are more fiscally prudent, pay their bills on time, don’t have any charge offs or bankruptcies, and have higher credit lines and payment terms, will be safer drivers, which has been proven in studies.”

Where Can You See Your Car Insurance Score?

Unlike your FICO score, used by an overwhelming number of lenders to determine your creditworthiness, there is no industry standard for your auto insurance score. You can find a few of your auto insurance credit scores at:

  • Freescore.com
  • TrueCredit.com
  • Creditkarma.com

According to a study by Conning and Co., more than 90% of car insurance companies use one of the many auto insurance credit scores to determine your rates and insurability.

Getting the Lowest Rates on Car Insurance

You can ask which insurance score your car insurance company may use, but your best bet for securing the lowest rates on car insurance is to:

  • Check your credit reports from the three credit bureaus
  • Check your official FICO score at www.myfico.com
  • Ask your insurance company or agent what other factors go into determining your car insurance rates
  • Take a defensive driving course for a discount

There are some “no credit score check” insurance agencies, as well. If you have a bankruptcy or foreclosure in your 10-year history, you can find one of these auto insurance companies to insure your car.

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone. Additionally, the opinions of the commenters are not necessarily the opinions of this site

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