What Is a Credit-Based Insurance Score?

When paying insurance premiums, you most likely know that they are influenced by the history of filing claims, the property insured and several other factors. Many homeowners do not know how much their credit history influences their insurance premiums. Insurance companies use a credit based insurance score to calculate policy premiums.

Insurance Score

An insurance score is a number that insurance companies use for each person who applies for a policy. While the insurance score is similar to a credit score, it is not calculated using the same formula, in most cases. Most insurance companies use a separate score developed by the Fair Isaacs Company. This insurance score is based on information from the policyholder's credit report, however the variables are weighted differently than in a credit score.

Impact on Rates

When insurance companies look at a credit-based insurance score, they use it to calculate your premium rates. The amount of money that an insured pays in premiums is significantly impacted by the score that he has. If an insured has a low insurance score, the insurance companies charge a higher amount on his premiums. If the insured has a high score, he can be charged a lower amount because this represents a lower risk to the insurance companies.

Correlation Between Credit and Insurance Risk

Insurance companies look at credit information in the form of an insurance score because they believe that there is a direct correlation between a credit history and the amount of claims that are filed. Many studies have shown that those with low credit scores tend to file more insurance claims than those who have high scores. This could be because those with low credit scores tend to have lower amounts of savings and income and would need insurance claims to pay for anything bad that happens.

Score Factors

An insurance score is comprised of several factors in a person's credit history. For example, 40 percent of a score depends on payment history. Late payments can significantly affect an insurance score. The types of credit and the amount of debt that an insured have also play a role in the score. An insurance score does not include any information about a person's age, salary, where he lives or his occupation.