Your credit history can impact the price you pay for your insurance.
Many of the same factors that determine your FICO credit score are used to calculate your insurance score, a three-digit number insurance companies use to predict the likelihood that you'll file a claim.
In fact, this figure is often referred to as a "credit-based insurance score."
Here's what you need to know about your insurance score, including how it's calculated, how it's used and how to improve your score to get a better rate.
What we'll cover
- What is an insurance score?
- How your insurance score is calculated
- What's a good insurance score?
- Can I see my insurance score?
- How to raise your insurance score
- Bottom line
What is an insurance score?
A credit-based insurance score is used by providers of auto, homeowners, life and even health insurance to determine if you present a financial risk.
Your insurance score varies depending on which credit monitoring agency is providing data: TransUnion, for example, uses auto insurance scores that range from 300 to 900. The LexisNexis Risk Classifier, meanwhile, assigns a range of between 200 and 997.
Rated best for affordability by CNBC Select, Geico gets high marks for its widespread availability and low rates for auto insurance.
Geico Auto Insurance
Cost
The best way to estimate your costs is to request a quote
App available
Yes
Policy highlights
Geico coverage and services are available in all 50 states and the District of Columbia and there are 16 different types of discounts available. In addition to the standard coverage options, Geico offers various optional add-ons, such as emergency roadside assistance, rental car reimbursem*nt and mechanical breakdown insurance.
Terms apply.
Read our Geico Auto Insurance review.
If you're in the market for homeowners insurance, Nationwide stands out for having easy-to-manage policies and a variety of discounts.
Nationwide Homeowners Insurance
Cost
The best way to estimate your costs is to request a quote
Maximum coverage
Not disclosed
App available
Yes
Policy highlights
Policy covers home and property damages caused by theft, fire and weather damage. It also covers personal liability, loss of use and unauthorized transactions on your credit card
Does not cover
Water damage, earthquakes, flood insurance, identity theft, high-value items, rebuilding home after loss (these can all be purchased as add-ons for extra coverage)
Terms apply.
How your insurance score is calculated
According to the Insurance Information Insititute, actuarial studies suggest that how people manage their finances is a good indicator of how likely they are to file an insurance claim.
In general, insurers consider those with lower insurance scores to be a higher risk and charge them higher premiums.
FICO is best known for its credit scoring model, but it also has an algorithm to calculate insurance scores. It considers five factors, each assigned a different weight in determining your overall score.
- Previous credit performance (40%). Your payment history with credit cards, installment loans, mortgages and other financial products, including the amounts of any past due accounts and the length and timing of any delinquencies.
- Current level of indebtedness (30%). How much debt you owe and on what kinds of accounts.
- Length of credit history (15%). The age of your oldest accounts and the average age of all of your accounts.
- New credit (10%). The number of accounts recently opened and any voluntary credit inquiries.
- Types of credit used (5%). The type and frequency of credit used.
Eight states — California, Hawaii, Maryland, Massachusetts, Michigan, Nevada, Oregon and Utah — prohibit or greatly restrict insurers from using credit-based insurance scores.
Each has different regulations: In Maryland, for example, insurers can't use your credit history to deny your application for car insurance. But they can use it to determine your rates. Massachusetts law, meanwhile, prohibits both home and auto insurers from using credit information in determining eligibility or rates.
During the pandemic, the Nevada Department of Insurance paused the use of adverse credit information to deny, cancel or refuse to renew a policy or to increase premiums. Without action by the Nevada Legislature, that ban is set to expire on May 20, 2024.
Carriers do consider other factors, including where you live, your age, gender and what kind of home or car you're trying to insure. (It typically costs more to insure an older home, for example, than a new build.)
One big consideration is your history of claims: Many insurance companies rely on the LexisNexis C.L.U.E. (Comprehensive Loss Underwriting Exchange) Report, which collects up to seven years of auto and personal property claims.
What's a good insurance score?
Using the LexisNexis Risk Classifier, an insurance score of 770 or higher out of 997 is considered good and will get you a favorable premium.
A score of 500 or below is considered poor and could result in higher premiums or being turned down for coverage.
Can I see my insurance score?
FICO and TransUnion don't make insurance scores available to consumers but you can ask your current or prospective insurer to provide yours. You can also reach out to LexisNexis and request your Consumer Disclosure Report.
While your insurance score isn't the same as your credit score, it's calculated using the same information. Someone with a high credit score likely has a high insurance score.
How to raise your insurance score
In states that allow your credit history to impact your premiums, it typically accounts for 40% of your insurance score. So the best way to improve your score is by improving your credit.
According to FICO, a strong track record of on-time payments can boost your insurance score. Consider automating payments and, if possible, pay the full balance — or at least more than the minimum payment required.
Subscribe to the CNBC Select Newsletter!
Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here.
Bottom line
In most states, a credit-based insurance score helps determine your monthly insurance premiums. To improve your score and lower your premiums, make sure you're paying your bills on time and in full.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every insurance review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
Read more
Read more
The cheapest auto insurance companies to cover your car without breaking your budget
More than 20% of American drivers bought less insurance than they wanted due to high costs
Comprehensive car insurance: What is it and do you need it?
Car insurance premiums are up in 2024 — 6 ways to keep your rates low
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
