Tip of the Month: What is an Insurance Score?
We all know what happens when we want to purchase something on credit: we get denied or approved largely because of our credit score, which is a rating of the level of risk that we represent based on past financial behavior (pursuit of new credit, length of credit history, current level of indebtedness, types of credit used, and previous credit performance). When you apply for insurance to cover your car or your house, the same thing happens. Except this time, it’s called a credit-based insurance score and it’s a rating of the level of insurance risk that you represent. Your insurance score is important because it will determine what programs you will qualify for and at what rate.
An insurance score is not the same as a credit score. For starters, it is not as in-depth and does not show a person’s credit accounts. Like your credit score, your insurance score is a number that is based on information in your credit report that can predict whether you’re more or less likely to have future claims that will result in losses for the insurance company. The higher the score, the less risk you represent. This will result in lower premiums.
Your insurance score is built on depersonalized data and does not reflect anything personal like race, color or occupation. Insurers use this score along with motor vehicle records (for auto insurance) or history report and property inspections (for property insurance) to make sure you pay the premium rate that most closely corresponds to the risk that you represent.
Since your credit score affects your insurance score, it is worth your while to do all that you can to improve and maintain a high credit score. Just remember, there are no quick fixes. Improving your credit takes time. Being diligent in paying off debt and other financial obligations on time and keeping revolving credit checked will have a positive long-term effect on your credit rating.