Insurance Credit Score: The Surprising Way Your Credit Score Impacts Your Premiums

Your credit score is an essential indicator of the health of your credit history. But having good credit isn't just important if you're applying for a loan or credit card; in many states, auto and homeowner's insurance companies also use your credit history to help determine your rates.

If you're hoping to find ways to save money on car insurance or homeowners' insurance premiums, here's why focusing on your credit is crucial.

What is a credit-based insurance score?

Unlike many lenders, home and auto insurance companies don't use a traditional FICO credit score to help calculate your rate. Instead, they use what's called a credit-based insurance score. These scoring models consider many of the same factors that FICO uses for its traditional credit score, but with a few differences.

There are seven states that have outlawed or heavily restricted the practice: California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, and Utah. One thing to keep in mind is that states typically don't allow insurance companies to use your credit-based insurance score as the sole reason for hiking your rate or denying, canceling, or refusing to renew a policy.

In other words, if your driving record is spotless, and every other aspect of your application is in good shape but you have a bad credit score, you likely won't end up paying a higher rate because of it. But if you have a low credit score plus a negative mark on your driving record or a lapse in coverage, it could compound the premium increase.

A study from the insurance comparison site, The Zebra, found that people with poor credit (under 580) pay about 109% more each year for car insurance compared to those with exceptional credit (800 or higher), even if they have identical driving records. Unfortunately, insurers themselves haven't disclosed specifics on how much a bad credit score can cost you, and premium increases can reflect several different factors.

How do insurance credit scores work?

There are a couple of different options insurers can use, including the FICO Insurance Score and the LexisNexis Attract Score.

FICO doesn't list a range for its insurance-based credit score, but it considers all the same factors as a traditional FICO credit score, albeit with different weightings:

• Payment history (40%)
• How much you owe (30%)
• Length of credit history (15%)
• Recent inquiries (10%)
• Credit mix (5%)

LexisNexis doesn't disclose weightings for its Attract Score, but it does list the following factors that go into calculating your insurance credit score:

• Length of credit history
• Payment history
• Amount of debt
• Recent credit inquiries
• Accounts in good standing
• Types of credit used

LexisNexis Attract credit score ranges from 200 to 997 with the following ranges:

• Good credit score: 776 to 997
• Average credit score: 626 to 775
• Below-average credit score: 501 to 625
• Less-desirable credit score: 200 to 500

Your insurance-based credit score can vary based on the credit scoring model the insurance company uses, as well as which credit bureau it requests data from to calculate your score. In some cases, certain items may show up on your credit report with Experian or Equifax but not TransUnion.

Insurance credit score vs. credit scores

The differences between insurance credit scores and traditional credit scores aren't big, but they allow insurers to get a general sense of your credit history plus a little extra focus on the elements that matter most to them.

For example, here's how the FICO Insurance Score compares with the base FICO score you typically see when you check your credit:

	FICO insurance score	Base FICO score
Payment history	40%	35%
How much you owe	30%	30%
Length of credit history	15%	15%
Recent inquiries	10%	10%
Credit mix	5%	10%

In other words, FICO has determined that your payment history is more important for insurance companies than how many different types of credit you have (i.e. your credit mix).

LexisNexis Attract Score doesn't provide weightings, but the differences in the factors evaluated compared to a traditional FICO score are so minor that it's unlikely you'll have a good traditional credit score and a bad insurance-based credit score.

5 tips for saving on your car insurance

Even if you have great credit, here are some ways you can reduce your rates on your auto and homeowner's insurance policies.

1. Shop around

The best way to save money on insurance is to shop around. There are several different insurers out there, and each has its own criteria for determining your premiums.

Request rate quotes from at least three to five auto or homeowners insurance companies to get an idea of which one will give you the best rate. Make sure to request all the same features, though, so you're comparing apples to apples.

2. Ask for discounts

Every insurance company offers discounts, but not all of them are created equal. As you go through the quote process, check to see which discounts are available and which ones you're eligible to receive. It may even be worth calling and speaking with an agent to see if there are any discounts you're missing.

3. Reduce your coverage

Most states require a minimum amount of liability coverage, and if you're financing your car, your lender may have some additional requirements on top of that. But above those minimums, the policyholder gets to choose how much coverage they need for their car.

Reducing your coverage can help you save money on your premiums because it lowers the amount the company potentially has to pay out if you file a claim. Just make sure you don't cut too much. Otherwise, you could end up footing part of the bill yourself if your coverage runs out.

There may also be certain types of insurance coverage you need or don't need based on your driving habits. Be mindful of what's necessary with a policy and what isn't.

4. Ask for a higher deductible

Your deductible is the amount you have to pay out of pocket if you file an insurance claim on your policy. For example, if you have a $500 deductible on your collision coverage and get in an accident in which you're at fault, you'll pay $500 toward repairing your vehicle before your insurer covers the rest.

The higher your deductible, the less money the insurer has to pay out, so increasing your liability will lower your car insurance rates. Just make sure you can afford the deductible amount if something does happen and you need to file a claim.

5. Reevaluate once a year

Although one insurer may offer the best rate right now, that doesn't mean it's still the best rate a year down the road. If you've improved your credit or certain aspects of your situation have changed, you may be able to switch to a different insurance carrier and save money.

As a result, it's a good idea to check at least once a year to make sure you're still getting the best rate. If not, switching is easy and can save you big time.

FAQs about insurance credit scores

Here are some of the common questions we found about credit-based insurance scoring, along with their answers.

The bottom line on insurance-based credit scores

Your credit history can impact how much you pay on your auto and homeowner's insurance policies, so it's a good idea to take steps to improve your credit score if you want lower premiums. That said, it's important to keep in mind that insurers don't necessarily use your credit as the sole reason for increasing your rate, and some states don't allow the practice.