How to Calculate Auto Insurance Score

Insurance firms use a formula called an insurance score to assess how much of a risk you insure. It is measured by taking into account your credit score, injury history, and insurance history. Since each company has its formula for measuring insurance ratings, it isn’t easy to know exactly what score they’ve given you. Your insurance score would be higher if you have a good credit history and have made fewer claims.

One of the variables that can impact your auto insurance premium is your credit score. You should be aware of the relationship between your credit score and your insurance score to understand better how your auto insurance is priced and how you can lower it.

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Why Does a High Score Matter?

Auto insurance ratings are used by insurance providers to estimate the probability of potential claim filings and to decide whether or not to award an individual an insurance policy and at what cost.

Higher scores—in other words, positive scores—predict fewer injuries and claim files for a policyholder. An insurance provider is more likely to consider you as a client and give you lower rates if you have a strong auto insurance ranking. On the other hand, bad insurance ratings can lead to your application being rejected or you being required to pay higher premiums.

How Is Your Auto Insurance Score Calculated?

Insurance ratings are often calculated by insurance providers using their proprietary methodology or, in some cases, by a third-party vendor. The size or range of potential insurance ratings and what has been considered as high or low risk vary greatly between insurers due to the various methods used. You won’t be able to review your car insurance score or have a good understanding of how it is measured because insurance ratings are confidential.

Your insurance score is based on details from your credit report/history and your insurance background, which includes claims. As a result, your insurance score will be determined by many of the same variables that decide your credit score, such as:

  1. History of payments
  2. Expenses due
  3. Credit history length
  4. Combination of credit
  5. Credit inquiries have increased.

The following details from your insurance background can be used to calculate your insurance score:

  1. Accident history, including any collisions in which you were at fault
  2. History of insurance claims

Stuff like work history, wages, and marital status will not be considered when calculating the insurance ranking. Since various insurers use different approaches to measure insurance scores and don’t make such procedures public, it’s difficult to know how they’re estimating your score — they could use information from your credit report combined with information about your insurance history, or they could use your current credit scores combined with information about your insurance history.

In general, if you have a decent credit score and haven’t filed a claim in many years, you’ll have a better insurance score and pay lower insurance rates.

What Factors Go Into Determining an Insurance Score?

Previous claims, injury history, and credit history are all variables that can affect your auto insurance ranking. Previous insurance policy claims are kept on the record for many years. A high frequency of claims is perceived by insurers as a higher probability of potential claim filings, reducing your ratings.

Your insurance score will be determined using your accident history, especially on file with your insurance company. A history of injuries, including claim filings, can hurt your score and ability to get good rates. Even though public driving records are rarely used in insurance scoring, insurance providers will still charge higher premiums for driving violations from the previous ten years.

Your insurance ranking is highly affected by your credit history. A higher insurance score is correlated with a better credit background. Factors that affect your credit score include:

  1. Your credit history’s average duration, or how long you’ve used credit cards, loans, and other forms of credit.
  2. The number of liabilities that are still open and in good standing also expressed as a percentage of total credit available.
  3. Liability defaults in the past, including bankruptcy, home foreclosures, repossessions, and liens.

What You Should Do to Increase Your Insurance Score

Given that your credit history accounts for a large portion of your insurance score and that the consequences of past injuries and claim filings can only be mitigated over time, you can concentrate on strengthening credit-related factors.

The following are some suggestions:

  1. Pay off your loans on time or before the deadline. On-time payments prevent interest from compounding month after month and show insurance providers that you are trustworthy with your money.
  2. Reduce your credit utilization. To put it another way, aim to use less credit than the total amount of credit available for all of your liabilities.

Endnote

Insurance firms have different definitions of what makes a good insurance score, so getting several quotes is often a good idea. Remember that insurance ratings eventually decide your premiums, so comparing quotes from various providers will help you find a policy that better meets your financial needs.