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How do insurance companies use my auto insurance score?
Insurance companies use your credit-based auto insurance score as one of many factors to determine the premiums they charge. In addition to insurance scores, insurance companies usually consider factors like:
- ZIP code
- Age, make and model of your vehicle.
- Miles driven per year.
- Driving history
- Age or driving experience.
- Accident or claims history.
When insurance scores are combined with other factors, insurance companies can better determine the likelihood of insurance losses. That’s important because insurance companies are in business to make money, which means they need to make sure they can cover future losses and their expenses, and still be able to turn a profit. Based on all the information at their disposal, including your credit-based insurance score, insurance companies then set premiums for your auto insurance policy.
Insurance score factors
The exact factors that influence your insurance score can vary from company to company. But all insurance companies are trying to determine risk, so the factors are likely similar. They may disregard some credit details that have no impact on insurance risk, or they may factor in some of the same credit information but at different degrees.
The credit-score made up of the following major credit categories:
- Payment history (roughly 40%)
- Total debt (roughly 30%)
- Length of credit history (roughly 15%)
- Pursuit of new credit (roughly 10%)
- Mix of credit (roughly 5%)
It’s important to note that there’s some information that isn’t included when calculating your credit-based insurance score. This can include info like the following:
- Marital status
And while personal information like this might be considered part of the auto insurance pricing decision, it is not factored into your insurance score.
What factors hurt my credit-based auto insurance score?
While credit scores and insurance scores are calculated in different ways, many of the same negative activities can hurt both. The difference is that the actions may affect your credit scores and insurance score in slightly different ways or by differing degrees of severity.
Below is the following examples of credit factors that could hurt your insurance score:
- Making late payments
- Using a high amount of your available credit
- Applying for many new credit accounts
- Having accounts in collection
What can I do to improve my credit-based auto insurance score?
Improving your auto insurance score could help you find lower insurance rates, all other factors held equal. Ultimately, it comes down to practicing good credit health habits. For example, here are some of the habits that could help your insurance score:
- Having open accounts in good standing
- Building a long credit history
- Keeping your credit utilization low
- Having no missed or late payments
Some companies may be willing to overlook some of your negative credit information in extreme circumstances.