When shopping for insurance, the rates that insurance companies charge you can be drastically impacted by your credit history. Your insurance score is a numerical representation of your credit history that is calculated by insurance companies. Your score comprises several important pieces of information in regards to your credit history.
What is an Insurance Score?
Your insurance score is very similar to your credit score that is calculated by credit bureaus. While this score is similar, it is not the same score that the credit bureaus use. An insurance score is a score that is calculated based on information in your credit report. This number is a way to summarize the information in your credit report. Insurance companies use this score because low credit scores tend to correlate with a higher volume of claims.
Important Factors
When calculating your credit score, the insurance companies look at several parts of your credit history. While many factors are in play, two areas have the most weight when calculating your score. The biggest factor is your payment history or previous credit performance. This one factor makes up 40 percent of your insurance score. The second biggest factor in calculating your credit score is your amount of current indebtedness. This makes up 30 percent of your insurance score.
Other Factors
Besides those two main factors, the insurance companies also look at a few of the factors. For example, the credit mix that you have also plays a role. This is a term used to describe having several different types of credit. The length of your credit history is also another factor that has some weight. This looks at how long you have had your oldest credit account open. Your pursuit of new credit also factors into the score.
Factors Not Considered
Even though the insurance company does look at several factors when calculating your insurance score, some information is not included and does not apply. For instance, your age and your salary are two factors that are not evaluated in an insurance score. Your race, color or ethnicity will also not play a role. If you are in some type of credit counseling program, this information will also not be included in your insurance score. When an employer makes an inquiry into your credit report, this will also not count against you.
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