What to Know About a Credit-Based Insurance Score

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A low credit-based insurance score can affect your car insurance rates more than a DUI, in some cases.

You are the only person on your policy, have an impeccable driving record, no gaps in coverage, and you have never had to file a ticket. Your car insurance rates are still higher than your utility bills. One reason could be poor credit or a low credit-based insurance score. One possible culprit? A low credit score or a low credit-based credit score on insurance.

What is a credit-based score on insurance?

Your credit-based score or insurance credit score is what determines how likely you will be to file a claim. This gives insurers an indication of the risk you pose and allows them to decide how much coverage to offer.

These credit-based-insurance scoring models have been proven quite accurate by data analytics companies such as LexisNexis or FICO. TransUnion found that drivers with poor insurance scores were twice as likely than drivers with better scores to file insurance claims.

Surprisingly though, poor credit can cause your car insurance rates to rise more than a recent DUI. In fact, rates for drivers with poor credit are 75% higher, on average, than for people with good credit, according to NerdWallet’s 2020 rate analysis.

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A credit-based score can also be used to determine coverage for other types of insurance, such as renters and home. However, you will get a separate score for each type of insurance. Some companies, such as LexisNexis offer scores that can be used across multiple insurance lines.

Although credit-based insurance scores are legal at the federal level to calculate rates, insurance companies are not allowed to use credit history to increase rates or deny or cancel policies. Insurers are not permitted to use credit in California, Hawaii Massachusetts, Michigan, Michigan, Washington, and elsewhere.

Comparison of credit-based and regular credit scores for insurance scoring

Your insurance credit score may not be the same as your VantageScore, FICO, or FICO credit score. This score is used to determine whether you are eligible for a mortgage or credit card. The factors that determine your score are not the same but weighted differently are. This is because credit scores are meant to predict how likely you will pay off your debts. Credit-based insurance scores assess the likelihood that you will file an insurance claim.

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Your rating could differ from one company to the next because more than one company can issue credit-based insurance scores. No matter what company you work for, the higher your score is, the better.

FICO and LexisNexis have similar factors that can be used to calculate a credit-based score, but they may differ in weighting. Below is an example of how FICO weights insurance credit scores according to the National Association of Insurance Commissioners.

  • 40 % Payment History: This is how you have made past payments, including the frequency and amount.
  • Outstanding debt (30 %)*: Total amount of debt).
  • Credit history length (15%): The amount of time that you have held a line credit.
  • Prospective acquisition of new credit (10%): Consider whether you have applied for credit lines recently.
  • Credit mix (5%): This refers to the types of credit that you have, such as credit cards, mortgages, or auto loans.

The following could have a negative impact on your credit score in insurance.

  • Payouts not received
  • Credit history with little or no credit.
  • Too many hard credit inquiries. Hard credit is when you apply to an auto, student, personal, or mortgage loan or credit card.
  • High credit card balances as compared with your credit limit, known as your credit utilization.
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Personal information, like a credit score, cannot be used to calculate your credit-based insurance score.

  • Gender.
  • Race
  • Marital status
  • Religion.
  • Age
  • Occupation and income
  • The location of the residence.

Although your credit score and credit-based insurance score aren’t the same, your credit score can be a good indicator of your credit-based insurance score. Your credit-based insurance score will be higher if you have good credit.

What is a good insurance credit score?

Because each company has its own definition of “good”, it is difficult to define what “good” credit-based insurer score means.

One insurance company may decide that a score of 750 is sufficient to unlock the lowest car insurance rates. Another insurance company might require a score 700 or higher in order to get its best price. Because scores are derived from different credit reporting companies, these numbers will not always be the same.

LexisNexis provides credit-based insurance scores via Experian, ranging from 200 to 997. This will give you an idea about the ranges. Here’s an example of LexisNexis scores and rankings:

  • Good: 776-997.
  • Average: 6266-775
  • Below the average: 501-625
  • Less desirable: Under 500.
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TransUnion’s website states that an “excellent” score is approximately 770 or more.

Poor credit scores have the average car insurance rate

Although insurance companies differ in their definitions of “poor” credit scores, the example above shows that 625 or lower would be considered to have poor credit.

For a driver with bad credit, the average car insurance rate is:

  • $2,506 annually for full coverage
  • Minimum coverage: $1,078 annually

The average car insurance rate for a good driver with excellent credit is $1,080 per year for full coverage, and $471 per year to get minimum coverage.

Are all auto insurers using credit-based insurance scores

There are many reasons why credit has been criticized for determining insurance rates. Critics claim it is unfair to price auto insurance on the basis of credit scores, as it can’t predict an individual’s risk of being involved in an accident. Consumer advocates are also against the use credit-based insurance scores to determine insurance rates.

Some companies have begun to eliminate credit checks. Root Insurance has pledged to remove credit scores from its pricing model by 2025, while drivers in Texas can get a no-credit-check car insurance quote from Dillo.

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According to FICO, 95% of auto insurance companies use an insurance credit score for determining car insurance rates. This means that depending on your location, you may not have any choice. However, this doesn’t mean that you have to pay the current rate. Shopping around for car insurance quotes can help you find lower rates, even if you have poor credit.

Which company offers the best rates to good drivers with bad credit?

Out of the seven largest auto insurers in the U.S., Geico, on average, has the best rates for good drivers with poor credit. Our “good driver” profile includes a 40-year old with no moving violations and credit in good tier.

These rates are for full coverage policies, which include liability, comprehensive, collision, uninsured/underinsured motorist protection and any additional state-mandated coverage.

How to improve your credit score and get lower insurance

Here are a few tips to build credit:

Make sure you pay your bills on-time. Having a history of on-time payments is one of the best ways to improve credit.

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Your credit card debts must be paid. Try to get rid of credit card debts as quickly as possible without exceeding your budget.

Reduce your credit card debt. Sometimes you may need to use your credit card for necessities. However, you should try to keep your credit card balances below 10% of your total credit limit.

Hard credit inquiries should be limited. Temporarily lower credit scores may be caused by hard credit checks, such as those that are used to determine your eligibility for a loan. You should wait at least six months before you apply again.

Your credit-based insurance score. To find out why your score was created, contact the company. Although it is not as simple as obtaining your credit-based insurance score, it is still possible. Insurers will give you contact information to learn more about your credit score, especially if it has affected your car insurance rates.

Request a copy your credit report. Get a copy your credit report if you have difficulty locating your credit-based insurance score. You can get a free credit report from Experian, Equifax, and TransUnion every 12 months under the Fair Credit Reporting Act. Consumers can get a free credit report each week from April 2021 through the pandemic. NerdWallet can provide your free TransUnion credit report; get your Experian and Equifax report at AnnualCreditReport.com.

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Your report includes your:

  • Identification data.
  • Payment record
  • Opening of accounts
  • Age of accounts
  • Recent inquiries about hard credit
  • Revolving credit and medical debt.
  • Balances
  • Credit limits
  • Personal information such as your address and job.

This data can be used to determine what factors may affect your credit score. Credit-based insurance scores and credit scores both use the same information, so any actions you take will have an impact on both scores.

Ask to be added as an authorized users. If you’re close with someone who has a lightly used, established credit card account, preferably with a generous credit limit, ask them to add you as an authorized user. Being added to their card may help build your credit.

Know your rights The laws of each state differ regarding the use of credit to determine insurance rates. For more information, contact your state’s insurance department.

If you have bad credit, there are other ways to save money on your car insurance

If you have poor credit scores, improving your credit score can help lower your insurance rates. However, there are other ways to save.

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Compare. Compare car insurance rates to find the cheapest auto insurer. Even if your credit score is poor, you may be able find a lower price. Because every company weighs different factors, this is possible. Poor credit can lead to a rate increase of 10% by one company, but a different company might offer a rate increase of 5%.

Poor credit can affect your insurance rates. However, shopping around will not have an effect on your credit score. There’s no credit check when you compare car insurance quotes.

When you are applying for a policy with a company, your insurance credit score is very important. Most companies will assess your credit score when you are a new customer to calculate your car insurance rate. P.J. says that companies will vary on how often they check your score after you have purchased your first policy. Smith, senior director for product management at LexisNexis Risk Solutions.

Some auto insurance companies will review your credit score when you renew your policy. Others may only check it occasionally. State regulations will determine how often you need to check your insurance credit score.

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This means that you shouldn’t assume you are getting the lowest rate because your credit score has improved. Compare prices to ensure you get the best deal. Comparing car insurance rates is especially beneficial for young adults, new immigrants, and those who don’t have credit histories.

Insurance based on usage. You might be able to get lower car insurance rates if you are a good driver. While usage-based policies still consider factors such as age and location, driving habits are also taken into account to determine your car insurance rates. Root, a traditional insurer like Progressive, offers this type of insurance.

You can pay per mile insurance. This policy is different from traditional insurance in that premiums are based on how many miles you drive each year. This is often done using a smartphone app or plug-in device. This insurance could be cheaper if you work remotely or don’t drive as much. Metromile is one company that specializes in this type insurance. Nationwide and a few other large insurers also offer this per-mile option.

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Request a LexisNexis Report. Your credit score and driving record are only one of the factors that will determine your car insurance rates. Your driving record and your insurance history are also important.

Insurers get your driving and insurance history from your Comprehensive Loss Underwriting Exchange, or CLUE auto report. CLUE is a set of data LexisNexis sells auto insurers to help approve clients and determine premiums. You can request a full file disclosure for free on its website, which includes copies of several reports that LexisNexis compiles about you such as your CLUE auto and property reports.

Questions frequently asked

Does getting insurance quotes affect your credit score?

No, there is no “hard credit pull” when you get a car insurance quote, so shopping around won’t impact your credit score. Hard credit pulls are generally when you apply to credit such as a mortgage, credit card or other forms of credit.

Is insurance the same thing as credit?

A credit-based insurance score and regular credit score are different, although both look at similar factors, like your payment history. Insurance companies use your insurance credit score to predict the likelihood that you will file a claim. A poor score usually means higher insurance rates.

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What is good credit-based insurance?

There is no simple answer. Each insurer decides what a “good” credit-based insurance score is, so numbers can vary. Your credit score can give you an indication of how “good” your insurance score.