Your insurance score is based on your credit score and can be used to calculate your insurance premiums.

Think your credit score affects only your ability to borrow money? Think again. Your credit score also can affect your access to homeowner and car insurance and the size of your monthly premiums. In fact, your credit score can be used to determine your “insurance score.” Never heard of such a thing? Here are the basics on credit-based insurance scores:

Definition of insurance score
As defined by the Insurance Information Institute (III), a person’s insurance score is “a numerical ranking based on a person’s credit history.”

Use of insurance scores
In order to fairly calculate premiums and predict risk, insurance providers try to predict who will submit claims prior to this actually occurring. Insurance carriers do not charge their customers a standard rate, but rather, one that is tailored to each individual’s potential risk. According to the III, actuarial studies have found that a person’s financial stability serves as a good indicator for making these predictions, helping insurers determine a person’s insurance risk level and calculate premium charges equal to that risk level. That is, people with good credit are typically less like to suffer a loss or submit a claim than those with poor credit.

Insurance score criteria
Although a person’s credit record is used in determining his or her credit-based insurance score, it is not the only contributing factor. Some of the data taken from a credit record for use in calculating an insurance score includes:

• Payment history
• Credit history and type
• Length of payment and credit history
• Outstanding debt
• Available credit
• Items of public record – bankruptcies, etc.

When compared to a credit score, an insurance score generally relies more heavily on information such as whether you've paid your bills on time and for what length of time, and less so on the amount of debt you have outstanding. Moreover, the importance of your insurance score depends upon where you live – each state has different insurance regulations – and the insurance company you use.

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