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While you may have heard of insurance scores, you may be unsure of what they are. Insurance scores are different from credit scores. Although they do take your financial history into account, their main goal is to gauge how likely you are to file a claim.
Let’s take a closer look at what insurance scores are and what constitutes a good insurance score.
With Credible, you can easily compare homeowners insurance rates from major carriers.
What is an insurance score?
The insurance score is a three-digit number that insurance providers use to predict how likely you are to file a claim as a potential policyholder. When you apply for homeowners insurance, an insurer will consider this point to determine whether to offer you a policy and how much to charge you for insurance premium.
Since insurance carriers develop insurance scores through proprietary formulas, each insurer has its own way of calculating your score. A lower insurance score means you are perceived as a higher risk to an insurance provider. If you have a higher score, you are considered a lower-risk policyholder and will usually pay lower rates.
While many states use insurance scores, some states prohibit or restrict their use, including:
HOMEOWNERS INSURANCE BASICS
What is a good insurance score?
Insurance scores can range from 200 to 997. Here’s an overview of what the different ranges mean:
- Under 500 – Poor
- 501-625 – Below average
- 626-775 – Average
- 776-997 – Good
It is important to note that all insurers have different underwriting standards for rating home insurance policies.
How do insurers calculate insurance scores?
Insurance carriers take several factors into account when calculating your insurance score. These factors can be found on your credit report and include:
- Payment history (40%) – This shows whether or not you make on-time payments on your credit cards, mortgage, car loans and other bills. Insurance providers want to see that you can make consistent payments on time.
- Amount of unpaid debt (30%) – Outstanding debt is how much money you owe. The less debt you have, the less risk you pose as a policyholder from an insurer’s perspective.
- Length of credit history (15%) – The length of your credit history is the amount of time you’ve had a credit account, such as a personal loan, mortgage or credit card. If your accounts have been open for a while and you’ve been making timely payments on them, your insurance score will benefit.
- How often do you apply for a new loan (10%) – The frequency of your new loan applications can reveal how risky you may be as a policyholder. If you open too many credit accounts at the same time, your insurance score can take a hit.
- Loan mix (5%) – Your credit mix is how many different types of credit you have. If you have credit cards, mortgages, car loans, and student loans, your credit mix is diverse and likely to help your insurance score.
Reliable makes it easy compare homeowners insurance rates from multiple insurance providers.
How to check your insurance score
If you are shopping for an insurance policy, you may be able to get an idea of your insurance score from the insurance carriers you are considering. When an insurer offers you a quote, find out if they used an insurance score to calculate your rate. Then ask which risk category you are in.
Another option is to request your own Consumer Disclosure Report from LexisNexis, which collects data that many insurance companies use to determine your score.
Since your credit is tied to your insurance score, it’s also a good idea to visit AnnualCreditReport.com and pull free copies of your reports from the three major credit bureaus: Equifax, Experian and TransUnion. If you notice any errors or inaccuracies, dispute them with the relevant credit bureau to potentially increase your score.
Insurance Score vs. Credit Score: Are They the Same?
While your credit score plays a role in your insurance score, these two scores are not the same. Lenders look at your credit score to determine how likely you are to repay a loan. Insurance providers consider your insurance score to determine how likely you are to file a claim. Insurers base your insurance premium on other factors beyond your insurance score.
HOW TO APPLY FOR HOME INSURANCE IN 8 STEPS
4 ways to improve your insurance score
If you build your credit score, you can improve your insurance score at the same time. To do this, you can:
- Pay bills on time. Do your best to make on-time payments on your mortgage, credit cards, car loan, student loans, and other bills. Even one missed payment can affect your score.
- Pay off the debt. If you have any delinquent accounts, catch them and make payments on time in the future. Aim for a credit utilization ratio of 30% or lower – this is your total credit balance divided by your total credit limit.
- Avoid new loans. Opening new loans or credit cards can lead to hard inquiries, which can lower your credit score. For this reason, don’t apply for too many new credit accounts in a short period of time unless you absolutely need them.
- Check your credit reports regularly. Take a close look at your credit reports at least once a year. Pay attention to any errors and report them to the appropriate credit bureau.
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