See what it is, how it’s calculated, and what it does to your rates!
What is an insurance score?
Some of you have heard that your rate increased or decreased due to your insurance score. This score is a 3 digit number, typically ranging from 200-997, that insurance companies use to predict how likely you are to file an insurance claim. Some of you may think “I’ve never filed a claim, and my insurance score is still low!” An insurance score is not only based on you filing claims, but rather a number of other factors.
What factors calculate your insurance score?
Although it is different than a credit score, the way they are calculated are very similar. Typically when you improve you credit, your insurance score will also go up. Credit scores predict the likelihood of you becoming very delinquent in repaying debts you’ve borrowed, while insurance scores predict the likelihood of you filing a claim. There are five factors used in calculating your score:
- Payment History – 40%
- Current Level of Debt – 30%
- Credit History Length – 15%
- New Credit Accounts – 10%
- Credit Mix – 5%
These scores are obtained by using third party vendor agencies such as Experian, TransUnion, or LexisNexis. Insurance companies typically purchase the use of these scores in a tool to help determine your premium. Under the Fair Credit Reporting Act, insurers are prohibited from using any personal information to determine rates such as:
- Race or Color
- Gender
- Marital Status
- Religion
- Income
You are able to obtain a free credit report once a year using one of the three major credit reporting agencies: Experian, Equifax, and TransUnion.
How often is my insurance score updated?
Insurance companies usually pull new insurance scores every one to three years; However, most companies will pull a new score at the annual policy renewals. Policy holders or insurance producers (with customer’s permission) are able to request that a new score be ran throughout the policy period, though insurance companies are not required to pull new scores more frequently than once in a 12-month period.
What is a good insurance score?
Each reporting agency has a different scale they use to determine your insurance score. LexisNexis uses a score that ranges from 200-997. Below is a general table of scores:
INSURANCE SCORE RANGE
RATING
250 – 500
POOR
501 – 625
BELOW AVERAGE
.626 – 769
AVERAGE
770 – 977
GREAT
Many companies will give favorable discounts to those who have average or great scores; Additionally, they will add surcharges to policies that have below average or poor insurance score ratings.
How do I raise my insurance score?
Just as you would to improve your credit score, to raise your insurance score:
- Pay all bills on time!
- Limit your credit usage – just because you have a limit of $3,000 doesn’t mean you have to use it all.
- Avoid opening new accounts if possible.
- Keep your oldest accounts open. Even if you have a credit card that’s been paid off, you don’t have to call to close the account. This helps your age of credit history and can benefit your report numbers!
Citations:
https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-500-2153