What to know about insurance scores

Insurance carriers use your insurance score to predict how likely you are to file a claim. Find out how they work. (Shutterstock)

While you may have heard of insurance scores, you might be unsure of what they are. Insurance scores are different than credit scores. Though they do take your financial history into account, their main purpose is to measure 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 top carriers.

• What is an insurance score?
• What is a good insurance score?
• How do insurers calculate insurance scores?
• How to check your insurance score
• Insurance score vs. credit score: Are they the same?
• 4 ways to improve your insurance score

What is an insurance score?

An 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 score to determine whether to offer you a policy and how much to charge you for your 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 that you’re perceived as a higher risk to an insurance provider. If you have a higher score, you’re considered a lower-risk policyholder and will usually pay lower rates.

While many states use insurance scores, some states prohibit or limit their use, including:

• California
• Hawaii
• Maryland
• Massachusetts
• Michigan
• Oregon
• Utah
• Washington

THE BASICS OF HOMEOWNERS INSURANCE 

What is a good insurance score? 

Insurance scores can range from 200 to 997. Here’s a breakdown of what the various ranges mean:

• Below 500 — Poor
• 501-625 — Below average
• 626-775 — Average
• 776-997 — Good

It’s 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 they calculate your insurance score. These factors can be found in your credit report and include:

• Payment history (40%) — This shows whether or not you make timely payments on your credit cards, mortgage, car loans, and other bills. Insurance providers want to see that you can make consistent timely payments.
• Amount of outstanding 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%) — Credit history length is the amount of time you’ve had a credit account, like a personal loan, mortgage, or credit card. If your accounts have been open for a while and you’ve made timely payments on them, your insurance score will benefit.
• How often you apply for new credit (10%) — The frequency of your new credit applications may reveal how risky you might be as a policyholder. If you open up too many credit accounts at once, your insurance score can take a hit.
• Credit 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 will likely help your insurance score.

Credible makes it easy to compare homeowners insurance rates from multiple insurance providers.

How to check your insurance score

If you’re shopping around for an insurance policy, you may be able to get an idea of your insurance score from the insurance carriers you’re considering. When an insurer provides you with a quote, find out whether it used an insurance score to calculate your rate. Then, ask which risk category you’re in. 

Another option is to request your Consumer Disclosure Report from LexisNexis, which collects data that many insurance carriers 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 main credit bureaus: Equifax, Experian, and TransUnion. If you notice any errors or inaccuracies, dispute them with the appropriate credit bureau to potentially boost 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, too.  

HOW TO FILE A HOME INSURANCE CLAIM IN 8 STEPS

4 ways to improve your insurance score

If you build up your credit score, you can improve your insurance score at the same time. To do so, you can:

• Pay your bills on time. Do your best to make timely payments on your mortgage, credit cards, car loan, student loans, and other bills. Even one missed payment can take a toll on your score.
• Pay down debt. If you have any past-due accounts, catch up on them and make on-time payments 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 credit. Opening new loans or credit cards can lead to hard inquiries, which can bring down 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 those errors to the appropriate credit bureau.

Visit Credible to compare homeowners insurance rates from various insurance providers in minutes.