Insurance Term of the Day: Insurance Score
What’s your insurance score? You didn’t even know you had one, did you? So, what exactly is an insurance score?
This score is calculated from information on your credit report, along with normal risk factors regarding the type of coverage you are requesting. So, while the insurance score is determined using your credit score, they are entirely different things with different purposes.
In summary, a credit score is determined by how timely you are with payments toward repaying borrowed money. Whether this money is a loan for a car or from your credit card, your credit report keeps track of whether or not your payments are made on time. Other factors may come into play when your credit score is calculated such as your job history and your income. These things may affect your ability to repay that money you borrowed.
The calculation of your insurance score uses your credit score because your ability to make payments on time is important to your insurance company. They are providing you with a product and trusting that you will make payments to support your contract.
The point of your insurance score is to help predict how likely it is that you will have a costly claim due to an accident during your policy term. There are factors that will either hurt or help your score which can either increase or decrease your premium.
If you have good-standing open accounts, with 100% on-time payments, and long-established credit history it’s like you’ll have a decent insurance score and a cheaper premium.
If you have open accounts with collections, past-due payments, and high-use of available credit, it’s more likely your premium will be more expensive.
Your premium cost will depend on your credit score, your claims history, driving record and tickets.
Not all states or companies use insurance scores. To get more information, contact your independent insurance agent. Knowing where you stand will help you to make conscientious moves toward improving your score to reduce your insurance rates.