What Is Insurance Credit Scoring?

Definition & Examples of Insurance Scoring

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Your insurance score is a grade that your insurance company creates based on several factors in your credit report. It's used to determine your eligibility for various types of insurance, along with your premium.

There is no single insurance scoring system used by every insurer, but there are similar standards for tallying your score and deciding your risk level. Let's look at all the factors that go into how an insurance company determines your insurability and how you can influence your score to improve your rates.

What Is Insurance Scoring?

Insurance scoring is a process that all insurers use to determine your eligibility for coverage and set your premiums. It's not something you'll usually see when you apply for insurance, but you can ask if it was used to determine your risk category. It's used alongside several other factors, such as your age; your claim history; the make, model, and year of your car; and even your ZIP code.

  • Alternate term: It's also called a credit-based insurance score because it's based on similar factors to your regular credit score.

Your insurance score and credit score aren't exactly the same—they even use a different scoring scale. Because your insurance score is based on your credit score, however, your credit score will be a helpful indicator of how insurers will rate you.

How Insurance Scoring Works

When you apply for insurance, your agent will send your information to their underwriters, who will get to work determining your credit-based insurance score, along with examining the many other factors that they will use to determine your risk category.

Factors That Influence Your Score

The National Association of Insurance Commissioners (NAIC) explains that there are a few different companies that provide credit-based insurance scores to insurance companies. For example, according to the NAIC, this is what FICO provides insurers when they ask for the insurance credit score:

  • Payment History
  • Outstanding Debt
  • Credit History Length
  • New Credit Applications
  • Credit Mix (type of loans, credit cards, revolving credit, etc.)

When your credit report changes, an insurance premium that uses credit-based insurance scoring may also change at your next renewal. If your credit score takes a big dip (or a big leap), be sure to check in with your insurance agent.

Do All Insurance Companies Use the Same Insurability Criteria?

Despite using similar criteria, there is no one "insurance score" that's the same across all insurance companies. There are only guidelines and common factors each insurance company will use depending on its own business strategy. Each insurance company has actuaries and underwriters who determine rates. Your overall score would be viewed differently by each of them, based on their underwriting criteria. 

It's clear, however, that having a high insurance score will help you get better rates with your insurance company, regardless of their business plan or target clients. Studies have shown that having high credit scores are indicators of financial stability, and financial stability has been shown to be a good indicator of how likely a person is to make a claim.

Online Tool: What Is Insurability Score?

One company has come up with an easy online tool that gives an "Insurability Score," but it is important to note that this is not a rating factor in itself used by insurance companies. It is not the same as the insurance credit score or credit-based insurance scoring.

The Insurability Score is a tool developed by The Zebra to help consumers understand their general insurance profile on a basic level by asking questions about your driving, claims, and credit history to generate a score. According to The Zebra, this gives users unique insight into behaviors and factors that affect their auto insurance risk.

Using Your Insurance Score

We've gone over several different ways insurance companies may "score" you to:

  • Determine your insurability
  • Give discounts
  • Use credit score and insurance payment history
  • Offer better insurance rates and lower prices

It can be confusing to understand everything that goes into your insurance ratings, but the most important factor to recognize is what criteria are important to the insurance company. Once you understand how they will be rating you, you can try and renegotiate rates when the factors are in your favor and improve factors that are hurting you or find another insurance company willing to offer you better prices.

Key Takeaways

  • An insurance score, also known as a credit-based insurance score, is a rating your insurance company determines based on similar financial factors that influence your credit score.
  • Insurance underwriters use this score, along with other factors such as your claims history and ZIP code, to determine your risk level and, ultimately, your premium.
  • There is no precise method that all insurers use to calculate your score, but all base it on similar financial factors.