Your Credit Score and How It Relates To Insurance (3)

When insurance companies use credit information to determine a customers “insurance credit score,” the score is calculated using information about a persons credit history. Many insurance companies will penalize recent history more than old credit history. The factors used for many insurance company scoring models include:

  • Public records: Such as bankruptcy, collections, foreclosures, liens, and charge-offs. Public records generally lower your insurance credit score.
  • Past payment history: The number and frequency of late payments and the days between due date and late payment date. If bills are not paid on time, the insurance score will be lower.
  • Length of credit history: and the amount of time a person has been in the credit system. A longer credit history will usually raise the insurance credit score.
  • Inquiries for credit: The number of times a person has recently applied for new credit, including mortgage loans, utility accounts, and credit card accounts. Shopping for new credit tends to lower a persons insurance credit score.
  • Number of open lines of credit: Including the number of major credit cards, department store credit cards. Having too much credit tends to lower a persons score. However, it’s generally not a good idea to cancel credit accounts that have been open a long time because a long credit history helps the score.
  • Types of credit in use: Such as major credit cards, store credit cards, finance company loans, etc. Generally, major credit cards are treated more favorably than other types of consumer credit.
  • Outstanding debt: How much you owe compared to your total available credit. Too much outstanding debt tends to lower the score.

Insurance credit scores are not the same with all insurance companies. Insurance companies have different views on which factors are more important. One company may feel public records are more important than past payment history. Another company may take a completely different view. How an insurance company determines what part of a persons public records and credit history is the most important will be how that insurance company decides what a persons insurance credit score will be and how it is used for that particular insurance company.

There is no single “good” insurance credit score. Generally, a good insurance credit score will equal lower premiums. This why it pays to shop around on a regular basis to make sure your premiums are competitive. Shopping for insurance will not affect your counsumer credit score. The inquires made on your credit report by insurance companies will not be recorded as attempts to open new lines of credit and will be reported as insurance information inquiries only.

It is also important to remember auto and homeowners premium are based on more than just credit history. Your auto insurance premium is based on factors such as your driving record, the type of car you drive, and where you live. Your homeowners premium is based on factors such as where you live and the cost to replace your home. Credit history is only one of a number of factors insurers use to rate your policy.

Other Blogs on the topic of Insurance Credit Scores:

Glossary of Insurance Terms:

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