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Insurance Scores FAQ

How Credit Based Insurance Scores Work


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Do you need motivation to improve your credit? Of course, you’ll have better luck with loan products and rates if you have great credit. However, your credit can affect insurance rates and products too. Insurance scores allow insurance companies to look at credit related information and decide how profitable you’re likely to be. Bad credit and insurance scores can price you out of the market, or make some products unavailable to you.

Insurance Scoring Background

High credit scores indicate that you’re less likely to cause headaches for the lender – so they’ll loan you more, more quickly, and at better rates. The lending industry has spent years and dollars refining a system that they’re quite happy with. It gives them an idea of how likely each borrower is to default on a loan.

Evolution of Insurance Scores

Businesses find that the same type of analysis used on borrowers can be used elsewhere. By having computers slice and dice massive amounts of data, companies can discover patterns that help them save money (or make greater profits). Most often, these systems use multivariate analysis – a way of looking at how inputs affect an output. This technique is used in a lot of different places.

Insurance companies have been on this bandwagon for a while. They look at credit related information and make judgments about your profitability as an insurance policy owner. While they may look at a FICO credit score, they’re even more impressed with insurance scores. Companies like ChoicePoint build insurance scores so that insurance companies can quickly and efficiently evaluate potential (and existing) customers.

What’s the Big Deal?

If your insurance scores are bad, it can really cost you. Insurers will periodically review your scores when a policy is up for renewal, and they might change your rates or deny you coverage. Occasionally you hear nightmare stories about families who had to do without insurance because of insurance scoring – that’s risky business.

What’s in an Insurance Score?

Insurance scores, like credit scores, are top-secret. There’s no way to know exactly how insurance scores work. Nevertheless, they have a wealth of information that comes from your standard credit reports. This information is sliced and diced, and a software program spits out an insurance score.

Not all insurance scores are the same. They can come from a variety of sources, depending on who builds the software. An insurance company might have its own score that incorporates credit related information along with other data – such as details you provide on your insurance application.

How do I Improve an Insurance Score?

Because insurance scores are generated with a secret formula, you can’t know for sure. However, you can make some educated guesses. For starters, the things that improve your credit score are likely the same things that improve your insurance scores. Avoiding bankruptcy, late payments, and tax debts will most likely keep you looking good. In addition, having well-aged accounts and minimizing inquiries can only help.

You should also remember there are other factors that might affect your rates. Information stores such as the Medical Information Bureau and ChoicePoint’s CLUE database may have information on you – this could be a good thing or a bad thing. Insurers will look at reports from these organizations in addition to your insurance scores.

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