You have always paid insurance on time, never filed a claim, and obey all traffic laws when driving. Advertising flyers keep showing up in the mail, and commercials on TV encourage switching car insurance companies. Since they all promise lower rates, you take the plunge and apply. Next you thing you know, a quote comes back that shows an increased rate. What happened?
You most likely were dinged by an unfavorable insurance number, also known as insurance credit score or auto insurance score. This numerical ranking can decide what kind of premiums insured people pay for car, rental, homeowners, motorboat, RV, motorcycle and other similar types of coverages. While outsiders don’t know how this number exactly comes about, it definitely pays to know what it is and how it affects life. The following overview will provide an understanding of how agencies use this information.
How Is an Auto Score Created?
The auto insurance score is the product of a complex algorithm. While it has common variables with credit scoring because the calculations consider some of the same factors, credit and insurance scores are not the same. Insurance numbers evaluate claims risks, and credit scores denote payment abilities.
What Do the Numbers Mean?
People who are considered a higher risk have lower scores and pay higher premiums. If a score is too low, coverage can be denied. Conversely, credit scores define the likeliness of a borrower paying money back in a timely manner. The auto score also has different rankings. Its highest achievable number is 997 while the low is 200. Any number less than 500 is considered poor while scores above 770 count as favorable.
You might argue that the actual driving history and lack of prior claims should count as the deciding factors, and that is partially correct. Insurance companies do use these statistics, but they aren’t the only criteria. They not only include prior claims, but accidents and tickets as well.
In technical terms, they use two data bases to come up with this number: the Comprehensive Loss Underwriting Exchange (CLUE) and the Automated Property Loss Underwriting System (A-Plus). Insurers have come up with this system because users with low credit scores statistically file more claims. Some companies might offset risk factors by taking other items into consideration, such as the amount of miles you drive.
How a Credit Score Affects Rates
Does a low credit score garner a low insurance number? Since the latter does use all the information in the credit report and combines it with your personal auto data, you can raise the insurance number by improving the credit score. If you have good credit but fall behind on bills, it might also negatively impact your auto score. There are three exceptions: Companies can’t use credit scores for insurance purposes in Hawaii, California and Massachusetts.
Since underwriters interpret data differently, quotes from different companies can fluctuate. Because these queries won’t affect credit scores, it pays to obtain numerous ones. You can check your auto score on sites like Credit Karma before the application process. If it’s not desirable, you can use these tips to improve it.