What to know about insurance ratings
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Although you may have heard of insurance ratings, you may not be sure what they are. Insurance scores are different from credit scores. Although they take your financial history into account, their main purpose is to measure the likelihood of you filing a claim.
Let’s take a closer look at what insurance scores are and what constitutes a good insurance score.
With Credible, you can easily compare home insurance rates of the best carriers.
What is an Assurance Score?
An insurance score is a three-digit number that insurers use to predict the likelihood of you filing a claim as a potential policyholder. When you buy home insurance, an insurer will take this score into account when determining whether to offer you a policy and how much to charge you for your insurance premium.
Since insurers develop insurance ratings using proprietary formulas, each insurer has their own way of calculating your rating. A lower insurance score means you are perceived as a higher risk to an insurance provider. If you have a higher score, you are considered a low-risk policyholder and will generally pay lower rates.
While many states use insurance scores, some states prohibit or limit their use, including:
HOME INSURANCE BASICS
What is a good insurance score?
Assurance scores can range from 200 to 997. Here’s a breakdown of what the different ranges mean:
- Below 500 — Poor
- 501-625 — below average
- 626-775 — Medium
- 776-997 — Good
It is important to note that all insurers have different underwriting standards for pricing home insurance policies.
How do insurers calculate insurance scores?
Insurance companies consider several factors when calculating your insurance score. These factors can be found in your credit report and include:
- Payment history (40%) — This shows whether or not you are making timely payments on your credit cards, mortgage, auto loans, and other bills. Insurers want to see that you can make regular payments in a timely manner.
- Amount of outstanding debt (30%) — Outstanding debt is the amount of money you owe. The less debt you have, the less risk you pose as a policyholder from an insurer’s perspective.
- Length of credit history (15%) — Length of credit history is how long you’ve had a credit account, such as a personal loan, mortgage, or credit card. If your accounts have been open for a while and you have made timely payments, your insurance score will benefit.
- How often do you apply for new credit (10%) — The frequency of your new credit applications can reveal the level of risk you may be running as a policyholder. If you open too many credit accounts at once, your insurance score can take a hit.
- Composition of credit (5%) — Your credit mix is how many different types of credit you have. If you have credit cards, mortgages, auto loans, and student loans, your credit mix is diverse and will likely help your insurance score.
Credible, it’s easy to compare home insurance rates with several insurers.
How to check your insurance score
If you are shopping for an insurance policy, you may be able to get an idea of your insurance rating with the insurance companies you are considering. When an insurer provides you with a quote, find out if they used an insurance rating to calculate your rate. Next, ask which risk category you are in.
Another option is to request your Consumer Disclosure Report from LexisNexis, which collects data that many insurance companies use to determine your score.
Since your credit is tied to your insurance score, it’s also a good idea to visit AnnualCreditReport.com and pull free copies of your reports from the three major credit bureaus: Equifax, Experian, and TransUnion. If you notice any errors or inaccuracies, dispute them with the appropriate credit bureau to potentially increase your score.
Insurance Score vs Credit Score: Are They the Same?
Although your credit rating plays a role in your insurance rating, these two ratings are not the same. Lenders look at your credit score to determine how likely you are to repay a loan. Insurers consider your insurance score to determine the likelihood of you filing a claim. Insurers also base your insurance premium on factors other than your insurance score.
HOW TO FILE A HOME INSURANCE CLAIM IN 8 STEPS
4 ways to improve your insurance score
If you build your credit score, you can improve your insurance score at the same time. To do this, you can:
- Pay your bills on time. Do your best to make timely payments on your mortgage, credit cards, auto loan, student loans, and other bills. Even a single missed payment can hurt your score.
- Pay off the debt. If you have overdue accounts, catch up on them and make payments on time in the future. Aim for a credit utilization rate of 30% or less: this is your total credit balance divided by your total credit limit.
- Avoid new credits. Opening new loans or new credit cards can lead to difficult inquiries, which can lower your credit score. For this reason, don’t ask for too many new credit accounts in a short time unless you absolutely need to.
- Check your credit reports regularly. Carefully review your credit reports at least once a year. Pay attention to any errors and report them to the appropriate credit bureau.
Visit Credible for compare home insurance rates with various insurers in minutes.