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Understanding Credit-Based Insurance Scores

Financial matters can be complicated, but understanding your credit-based insurance score doesn't have to be.

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A credit-based insurance score (insurance score, going forward) is a numerical value representative of a consumer’s credit profile relative to insurance risk. These scores predict the likelihood of a consumer having an insurance loss and filing a claim in the future. Insurers use insurance scores to understand a consumer’s insurance risk, which is one of the factors they use to calculate their insurance premium. The use of insurance scores has increased objectivity in insurance decision-making and provides greater accessibility and affordability of insurance.

Generally, insurance carriers are required to file how they use insurance scores with each state regulator where they do business. The state regulators review each model filed with them to ensure it is compliant with state criteria.

Your credit report is a record of how you manage your financial obligations and is based on account and payment information provided to consumer reporting agencies (such as TransUnion) by businesses like lenders, banks and utility companies. Scoring models then use categories of this information to calculate a three-digit credit score that provides a snapshot of your credit health to lenders, helping them make lending decisions. Credit scores attempt to predict your creditworthiness — or the likelihood you’ll repay a debt. (For more information about credit scores, please read, “What is a credit score?”)

Insurance scores, in contrast, help determine insurance premiums and are designed to predict insurance losses (as opposed to creditworthiness). Because insurers use credit data differently than a creditor or lender, it is necessary to use different scoring formulas to evaluate credit history for insurance purposes. In addition, just as lenders look at credit differently for mortgages versus auto loans, insurers look at credit differently when evaluating a consumer for an auto, or property, or life insurance policy. Scoring models measure different factors depending on how they are used, and they’re built and tested to be predictive for their particular application.  It should be noted that there are many versions of insurance scores as consumer reporting agencies and many insurance companies develop their own models.

It’s important to note that decisions regarding premium calculation and eligibility are made by the insurance company — not consumer reporting agencies, like TransUnion, that furnish the scores. Consumers should contact their insurance carriers directly if they have specific questions about the insurance scoring model their carrier uses.

Similar to traditional credit scores, various factors determine your insurance score, such as:

  • Payment history
  • Length of credit history
  • Applications for new credit
  • Numbers and types of accounts
  • Outstanding debt and the amount of credit used in comparison to amount of credit available
  • Severity and frequency of derogatory credit information (late payments, bankruptcies, charge-offs and collections)

The factors that impact your insurance score, and may result in your insurance carrier charging a higher insurance premium, get relayed to you in an adverse action notice.   

It’s important to understand your score is a representation of how you manage financial responsibility and isn’t a testament to you as an individual. Things like ethnicity, religion and marital status are excluded in the calculation of your score. Your employer, salary and occupation are likewise not included in the equation.

Since your insurance score is based on information about your financial responsibility as contained in your credit report, ensuring you manage your financial obligations in a satisfactory way should improve both your traditional credit score and your insurance score.

Check your credit score regularly with a monitoring service, but don’t be overly concerned about minor fluctuations. Your credit and insurance scores are just a snapshot of how you’re managing your credit at a particular moment in time. Paying your bills on time, maintaining low utilization of credit and not taking on too much debt can help rehabilitate your credit profile, resulting in a higher score.

Consumers can obtain a copy of their credit report by contacting any of the consumer reporting agencies, including TransUnion. Click here to access your TransUnion Credit Report

Your insurance score is one of many factors used to evaluate risk and determine your policy premium. Other factors commonly used may include your age, zip code, insurance and claims history, driving record (for auto insurance), property value (for home insurance), or health history (for life insurance), to name just a few. If your rate was negatively impacted, you may refer to your insurer’s adverse action notice for the reason, or you may contact your insurance carrier for an explanation. Note that TransUnion supplies insurance scores but is not part of the decision-making process that determines policy premium or eligibility.

If you think there’s something inaccurate on your credit report that could be impacting your insurance score provided by TransUnion to your insurer, you can easily conduct a dispute online. Find more information on disputes and learn how to get started here.