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 a number of factors in your credit report. It's used to decide whether you are eligible for many types of insurance. It can also be used to set the price of your premium.

There is no single scoring system used by all insurers, but the standards that each uses to tally your score and assess your risk level do tend to look very much the same across the board. Let's look at all the factors that go into how an insurance company decides whether you are a worthy client, and how you can affect 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 to set your premiums. It's not something you'll often see when you first apply, but you can ask if it will be used when they assign your risk level. Note that this score is not the whole story either. Your score is used along with many 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 factors much like those used to figure out your credit score.

Your insurance score and credit score are not the same thing, and they do not use the same scoring system. But since your insurance score is based on your credit score, if you know your credit score you may be able to predict (to some degree) how insurers will rate you.

How Insurance Scoring Works

When you apply for insurance, your agent will send your data to their underwriters. They'll then get to work figuring out your credit-based insurance score. They will also assess the many other factors at play to assign your risk level. This is not a measure of how much risk you can handle, but rather how risky they think you might be as a client if they were to insure you.

Factors That Affect Your Score

There are a handful of sources that provide credit-based scores to insurance companies. You may know some as the same major bureaus that report credit scores to lenders when you're shopping for a loan or line of credit. For example, this is what FICO provides when asked for the insurance credit score:

  • Payment history
  • Outstanding debt
  • Length of credit history
  • New credit applications
  • Credit mix (type of loans, credit cards, revolving credit, etc.)

When your credit report changes, any premiums you pay that use credit-based scoring may also change when you next renew. If your credit score takes a big dip (or a big leap), be sure to check in with your agent before you get a surprise on your monthly bill.

Do All Insurers Use the Same Criteria?

Simply put, no. Despite using much of the same data, there is no one "insurance score" that applies across the board. There are only basic guides and common factors each company will use. The factors they use depend on their own goals and business strategies. Each insurance company has actuaries and underwriters who set rates for their products. The way each rates and views your full score may differ from one company to the next, as final judgments are based on their underwriting criteria. 

There are some clear truths you can rely on, though. It's clear that having a high score will help you get better rates. This is in spite of any business plan or target clients. Studies have shown that people who have high credit scores also tend to be more financially stable, which in turn speaks to a person's risk. The more stable a person's finances are, the smaller the chance that they will make a claim.

What Is My Insurability Score?

You may be able to find online tools that attempt to measure your insurability score, but unless these are from legit credit reporting bureaus, they cannot claim complete accuracy. In other words, they can only guess at the rating factors any given company uses, and they will make the best guess possible based on the data you provide. The result will not be the same as your true insurance credit score, but that's not to say it won't be handy for other reasons.

For example, The Insurability Score tool created by The Zebra can help you learn about their risk profile on a very basic level. It asks questions about your driving habits, your past claims, and your credit history to produce a mock score. The Zebra offers this resource to provide users with insight into their own actions and the factors that might affect their auto insurance risk.

Using Your Insurance Score

We've gone over many ways insurance companies may "score" you, for a number of reasons. They may use your score to:

  • Decide whether to insure you in the first place
  • Give discounts based on good credit to pull you in
  • Assess how well you are able to keep up with payments over time (i.e., how stable you are with regards to money)
  • Offer better rates and lower prices to keep you as a client when it's time to renew

It can be hard to know the full picture of what goes into your insurance ratings, but if you can put yourself in the mind of an insurer you can learn what types of traits hold value (and which are red flags). Once you have a notion of how they will be rating you, you can use this insight. For instance, you may be able to try and renegotiate rates when the factors are in your favor. You may be able to work on your credit and improve factors that are hurting you. Or, you may decide to take that knowledge and seek out a new insurance company that's willing to offer you better prices.

Key Takeaways

  • Your insurance company assigns you a score based on factors that reveal how good you are with money, much like those that make up your credit score.
  • Underwriters use this score, along with a few other factors, such as your past claims and ZIP code, to assign your risk level and set your premium.
  • There is no precise method that all insurers use to come up with your score, but all base it on the same concept that instability with money equates to higher risk.