Most people know about credit scores, but auto insurance scores are a bit more obscure. Just like a regular credit score is meant to judge your risk of failing to pay a debt, an auto insurance score rates your potential risk of filing a claim on a car insurance policy. Insurance providers will use auto insurance scores as a rating system to determine what kind of offers they might give you, and what kind of prices you can expect for car insurance. Having a higher auto insurance score will help you save money on car liability and other types of coverage, so here’s what you should know.
Who Gives Auto Insurance Scores?
Three companies handle auto insurance scoring: FICO, TransUnion, and LexisNexis. This is almost the same as the three credit score providers: FICO, TransUnion, and Equifax. FICO stands for Fair Isaac Corporation, an analysis company founded in 1956, and their auto insurance score runs from 250 to 900. TransUnion is a credit rating and alert services company founded in 1968 with auto insurance ratings from 150 to 950.
The third company for auto insurance ratings is LexisNexis, a technology, government, and legal information services company founded in 1970 with car insurance ratings ranging from 200 to 997 called Attract scores. LexisNexis is the only company that offers insurance reports to the public. The other two providers reserve their scores for other purposes and do not share them the way FICO, TransUnion, and Equifax offer credit reports.
You’re usually entitled to a free credit report, but the same isn’t true of auto insurance scores. At present, TransUnion and FICO do not offer auto insurance scores to the public, and only LexisNexis does. If you need or want to get an auto insurance report, you can contact them or visit their website to get your Attract score and a detailed report.
How Are Auto Insurance Scores Calculated?
Each provider has their own references to calculate their scores, but all of them generally base their results on a credit report. When putting together an auto insurance score on someone, TransUnion will look at their own credit report for that person, and FICO uses TransUnion credit reports as well. LexisNexis uses credit reports by Equifax, the third major credit score company and the oldest, founded in 1899.
It’s easy to assume that an auto insurance risk assessment would look at your driving record, since it helps determine how much you have to pay for state minimum car insurance. Instead, auto insurance scores are nearly identical to the standard credit score. Insurance companies look at your credit usage as a way to evaluate your risk of needing insurance to pay for your expenses. A person with access to extensive credit and a great credit score is less likely to need an insurance company to help pay for any surprise incidents or accidents.
Eight states prohibit credit scores from being used as a determining factor in car insurance rates and scores, so they use different factors there.
What Factors Influence Your Auto Insurance Score?
The biggest factor for auto insurance scores is a person’s payment history, accounting for 40% of the scoring weight. Amount owed in debt was second place at 30%, and length of credit history was third at 15%. Taking on new credit accounts for 10%t, and what types of credit are being used accounts for 5%.
Though each company has different scoring ranges, it’s good to have a score of at least 700 or so. Anything below 500 can usually be called a poor auto insurance risk assessment rating. If LexisNexis or another source informs you of a lower-than-ideal auto insurance risk score, rest assured that you aren’t stuck with it. There are a couple of options to raise your auto insurance score, after which you can eventually apply to a new car insurance coverage plan with more affordable premiums.
How to Improve Your Auto Insurance Score
Since these scores are usually based on your credit, any attempts to raise your auto insurance score will be centered on your credit score. You should check your credit history to see if there are any errors that are lowering your score for no good reason. Along the way, you’ll also reap the benefits of a maximized credit score, which never hurts. Other tips to help you raise your auto insurance score include:
- Manage your credit and pay off as much debt as you reasonably can
- Continue to responsibly repay any borrowed credit, building a longer credit history
- Avoid borrowing more money or situations that might cause you to do so
Credit Utilization and Auto Insurance Scores
One of the keys to keeping a high credit score, and in turn a high auto insurance score, is maintaining a low credit utilization ratio, or the percentage of your available total credit that you are using. For example, if you had three credit cards as your sources of credit, and each had a limit of $5,000, you would have a maximum available credit of $15,000. If you maxed out one of those cards, you would be utilizing 33% of your available credit.
A good credit utilization ratio is about 30% or less, but it’s good to try and apply that across your credit as a whole and to each individual source. In the example above, 33% from maxing out a $5,000 card is also 100% utilization of that card. While the total doesn’t look that bad, having cards that stay maxed out for a long time will have an impact on your credit score.
Finally, if you’re making more income than you used to, don’t forget that raising your credit limit can also improve your utilization ratios. Even if you haven’t increased your income, it’s still worth it to request a credit increase. It won’t harm your credit score as long as you don’t suddenly max out that expanded credit line in a short period.
Auto Insurance Score Final Takeaway
The most important thing to know about auto insurance scores is that as long as you work to take care of your credit score, both should be fine. You can protect yourself financially in the long run by working to keep your credit and driving record as good-looking as possible since these have a major impact on your monthly cost of car insurance.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.