Why Your Credit Affects Your Insurance Rates

Most people are familiar with the concept of credit scores, but fewer may be aware that their credit score can impact how much they pay every month for car insurance. In fact, many auto insurance companies use something called an auto insurance score to determine your rate, and factors that affect your credit score also play a large part in determining your auto insurance score.

If you find yourself being offered bad rates from insurance companies due to poor credit, improving your credit score will go a long way toward getting you better auto insurance rates.  

What is an auto insurance score?

While both a standard credit score and an auto insurance score are based on similar pieces of information, there are some differences in how the two types of scores are calculated.

A credit score is based on information from your credit report, and the score is used to determine your likelihood of making payments on time. Credit scores inform the decisions lenders make, and they affect things like the interest rates, repayment periods, and loan amounts you’re offered.

An auto insurance score also uses information found in your credit report, but it may not use all the same information. In addition, factors related to your driving and insurance history form part of your overall auto insurance score, and that information isn’t in a standard credit report. 

Note that in California, Hawaii, Massachusetts, Maryland, Michigan, Oregon, Utah, and Washington, the use of auto insurance scores is either banned or limited.

How do auto insurance scores affect your rates?

An auto insurance score measures the likelihood of you filing a claim. As with many types of insurance, how likely you are to file a claim impacts the rate you pay—and when it comes to auto insurance, studies have shown that drivers with less-than-great credit are more likely to file claims.

Drivers who are likely to file claims cost auto insurance companies more money, so if you have a low auto insurance score, you’re likely to be offered less attractive (meaning, more expensive) rates.

How is your auto insurance score calculated?

An auto insurance score generally takes into consideration the five main credit factors, ranked here from highest to lowest in terms of how much weight they carry in a standard credit report:

  1. Your payment history
  2. How much of your available credit you use
  3. The length of your credit history
  4. New credit applications you submit
  5. How many types of credit you use

In addition to the above, which you’re probably already used to seeing in your credit report, your auto insurance score takes into account driver- and vehicle-specific factors to determine your rate. These factors may include: 

  • Driving history
  • Accident and claims history
  • Vehicle age, make, model and color
  • Zip code
  • Gender and age
  • Marital status
  • Occupation
  • Previous insurance coverage
  • Annual mileage

Who provides auto insurance scores?

There are three main providers of auto insurance scores: FICO, LexisNexis, and TransUnion. 

FICO® Auto Score 9 XT

Since 1981, FICO credit scores have been the industry standard for traditional credit scoring. In 2016, FICO introduced auto insurance scores to its offerings. FICO Auto Score 9 XT draws on data from TransUnion®, one of the three primary credit bureaus responsible for traditional credit reporting.

Your FICO Auto Score 9 XT ranges from 250 to 900, and its algorithm places special emphasis on borrowing habits that matter to auto lenders, such as whether you’ve increased your overall debt in recent months. With FICO Auto Score 9 XT, a good score is generally considered to be 700 and above. 

The FICO Auto Score 9 XT also places more weight on an individual’s past 30 months of behavior, so those with a checkered borrowing history who’ve made improvements in the year prior will benefit from the FICO algorithm.

LexisNexis Attract Auto Insurance Score

LexisNexis is a smaller credit reporting agency that specializes in industry-specific credit reports, including auto insurance scores. Its data is pulled from the credit bureau Equifax®, and its scores range from 500 to 997, with a score of 796 and above considered to be a good score. 

When an auto lender orders an auto insurance score from LexisNexis, the report generated can include the borrower’s full credit report or just excerpts, and it can also include an analysis from LexisNexis.

TransUnion CreditVision Auto Score

Unlike FICO and LexisNexis, TransUnion is one of the three major credit bureaus, and in addition to standard credit reports, it provides credit-based auto insurance scores. TransUnion’s auto scores range from 300 to 850 and are pulled from TransUnion’s own credit data. A good score is considered to be 776 and above.

Like other scores, TransUnion CreditVision pulls data on past payment history and borrowing behavior, offering over five years of account patterns as well as thorough details on the 30 months of history leading up to the generation of the report.

Can you check your auto insurance score?

Auto insurance scores aren’t accessible for free in the way credit reports and scores are, and they’re not as easy to get ahold of. LexisNexis and TransUnion allow you to purchase your auto insurance score report, but you have to call or email them—there isn’t a one-click solution like there is with a standard credit report. FICO makes checking your auto insurance score a little easier with its myFICO service, but it costs $19.95 a month. 

Fortunately, it isn’t nearly as important to check your auto insurance score as it is to check your standard credit report and score.

First, auto insurance scores don’t matter unless you’re planning on enrolling in a new auto insurance policy or switching to a new insurance company. If you don’t own a car and aren’t in the market for one, there’s no reason to be concerned about your auto insurance score.

Secondly, even if you’re in the market for auto insurance, you don’t necessarily need to check your score directly. The factors that determine your auto insurance score overlap significantly with credit score factors, so you can assume that if your credit score is healthy, your auto insurance score will be too—unless you have a bad driving history with multiple accidents and you’ve filed a lot of insurance claims.

How to improve your auto insurance score

You can improve your auto insurance score in the same ways you would otherwise improve your standard credit score. Here are a few ways you can improve both your auto insurance score and your credit score:

  • Make credit payments on time.
  • Keep accounts open.
  • Keep your credit utilization down.
  • Carefully manage your budget and pay down existing debt.
  • Regularly check for and dispute errors on your credit reports.

Getting mistakes removed from your credit report is an important way to improve your credit and, in turn, your auto insurance score. Make sure to check your credit report regularly for mistakes—you can obtain one free copy of your credit report per year from each of the credit bureaus via AnnualCreditReport.com. If you want help with your credit report, the credit repair consultants at Sky High Credit Repair can help you review it and work to address any mistakes to ensure your information is fairly and accurately reported. Reach out to our team today to learn more about our services.

Note: Articles have only been reposted by the Sky High Credit Repair team, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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