What Is a Credit-Based Insurance Score?

A credit-based insurance score is a numerical value derived from your credit history, used by insurance companies to predict the likelihood of you filing claims that could result in financial loss for the insurer. These scores are often considered when reviewing new insurance applications or renewing existing policies for auto, home, and life insurance.

Credit-Based Insurance Scores vs. Credit Scores

While both credit-based insurance scores and credit scores are derived from your credit report, they serve different purposes and have distinct characteristics:

Similarities

• Both are created by competing companies like FICO and VantageScore.
• Both primarily depend on the information from your credit report.
• Both rank consumers based on the likelihood of certain behaviors.
• Both provide reason codes explaining why your score is not higher.

Differences

• Credit-based insurance scores predict the likelihood of filing insurance claims, while credit scores predict the likelihood of missing credit payments.
• Credit-based insurance scores may have different score ranges compared to the typical 300-850 range of credit scores.
• Access to credit-based insurance scores is more restricted compared to credit scores.

Which States Use Credit-Based Insurance Scores?

Most states allow the use of credit-based insurance scores, but the extent to which they can influence your insurance rates varies. Some states have stricter regulations or outright bans on their use:

• California: Cannot affect eligibility or rates for auto and homeowners policies.
• Hawaii: Cannot affect eligibility or rates for auto policies but allowed for homeowners policies.
• Massachusetts: Cannot affect eligibility or rates for both auto and homeowners policies.
• Oregon: May affect eligibility and rates for new policies.
• Utah: May affect eligibility for new policies and can be used to lower rates.

Other Factors Used to Calculate Insurance Rates

In addition to credit-based insurance scores, insurance companies consider various other factors when determining your eligibility and premiums:

• Deductibles: Higher deductibles generally lead to lower rates.
• Coverage limits: Higher coverage limits usually result in higher premiums.
• Types of coverage: More coverage options come with higher rates.
• Location: Your place of residence can affect your rates due to varying risks.
• Specific characteristics: The type of vehicle or home features can influence your rates.
• Claims history: A history of filing claims can increase your rates.
• Discounts: Bundling policies or installing security systems can lower your rates.

How to Improve Your Credit-Based Insurance Score

Improving your credit-based insurance score can positively impact your insurance rates. Here are some tips:

• Pay your bills on time to avoid late payments and past-due accounts.
• Pay down loans and credit card balances to lower your credit utilization rate.
• Maintain a mix of revolving and installment credit accounts.
• Apply for credit only when necessary to avoid hard inquiries.

How to Lower Your Rates if You Have Poor Credit

If you have poor credit, you can still take steps to lower your insurance rates:

• Increase your policy’s deductibles.
• Lower your policy’s coverage limits.
• Remove optional coverage from your policy.
• Avoid filing small claims that you can pay for outright.
• Bundle multiple policies from one insurance company.
• Install security systems to qualify for discounts.
• Inquire about classes or programs that offer discounts.

Check Your Credit and Compare Insurance Quotes

Regularly checking and monitoring your credit report can help you stay informed about the factors affecting your credit-based insurance scores. Even if you live in a state where credit history is not considered for insurance, maintaining good credit is crucial for other financial aspects of your life.

At O1ne Mortgage, we understand the importance of good credit and its impact on your financial well-being. If you need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of mortgage services and find the best solutions for your needs.