Mathew B. Sims is Editor-in-Chief and has authored, edited, and contributed to several books. He has been working in the insurance industry ensuring content is accurate for consumers who are searching for the best policies and rates. He has also been featured on sites like UpJourney.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that exis...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Apr 24, 2020

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Things to Remember...

  • Factors such as gender, age, driving habits, and type of car may not “count” as heavily as financial history, in assessing your auto insurance score
  • Many insurers rely on the three large credit companies – EquifaxExperian, and Transunion – to get an accurate credit score for applicants.
  • Different insurance standards vary from state to state, so insurance scores also have to be calculated to meet state benchmarks.

Auto insurance companies rely on auto insurance scores to determine a customer’s insurance premium. While insurance companies used to rely on your accident and claim history to calculate your premium, they now also factor in your credit and financial history.

The young man speeding by you in the cherry-red Mustang might be paying less on his insurance premium than you are in your blue Volvo, driving the exact legal speed.

This is because factors such as gender, age, driving habits, and type of car may not “count” as heavily as financial history in the way that your auto insurance score is determined.

Looking to change your rates? Compare auto insurance quotes now by entering your zip code below!

How is an auto insurance score determined?

In order to determine your auto insurance score, an insurance company will pull your credit report in the same way that a bank does when you apply for a loan. The insurance company then applies a formula to your credit to assess your risk.

Many insurers rely on the three large credit companies – Equifax, Experian, and Transunion – to get an accurate credit score for applicants. 

Scoring and insurance companies keep their exact scoring methods to themselves, so there is no industry-wide standard. Additionally, different insurance standards vary from state to state, so insurance scores also have to be calculated to meet state benchmarks.

On its website, Progressive states that it analyzes both the accident and claim history and the credit report information of drivers, in order to predict how likely any one customer is to have a future car accident or insurance claim.

This predictive model compares people with similar “credit characteristics” to those who have filed accident claims in the past and then assumes the same type of people will likely file a claim in the future.

This likelihood is assigned a value, and then the values of all the factors are totaled to calculate your insurance score.

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Why do insurance companies factor in credit scores?

Insurance companies didn’t think they had enough information solely utilizing factors such as age, zip code, and marital status. Studies showed credit scores could help predict if a car owner would file an auto insurance claim in the future.

Nobody knows for sure why there’s a correlation between having “good credit” and filing fewer claims, but it sounds right. People who handle their money and other financial matters in a responsible way are less likely to get into accidents or, at least, less likely to report those accidents.

Are people who are careless with their finances also careless on the road? The evidence points to this being true. Therefore, companies use this information to assess a driver’s risk.

Of course, this is not true for every driver out there. Unfortunately, this is how car insurance companies have decided to generalize all drivers for now.

How do I raise my insurance score?

It is difficult to change your auto insurance score because each insurance company uses different factors for their score.

For instance, you may work to increase your credit score but if your insurer requests your credit report the day before your score begins to increase, your auto insurance premium will stay the same. That said, if you believe or know your credit has increased, some companies will allow you to request a reassessment of your insurance score midterm.

It’s always worth the effort to improve your credit rating. You can do this by establishing a good credit history over many years, paying off bills when they’re due, not carrying credit card balances from month to month, and making sure all financial accounts remain in good standing.

Try not to apply for too much credit in a short period of time, as this makes it appear that you’re having financial troubles, even if you’re just searching for a new credit card or bank account.

You can always make sure that you’re getting the best price possible on your premiums. Compare auto insurance quotes by entering your zip code in our FREE tool below!

References:

  1. https://www.equifax.com/personal/
  2. http://www.experian.com/
  3. https://www.transunion.com/
  4. https://www.creditkarma.com/auto-insurance-score
  5. http://www.investopedia.com/terms/c/credit-history.asp?lgl=myfinance-layout-no-ads