June 19th, 2012
What’s Up With My Auto Insurance Score?
There’s a lot of confusion surrounding auto insurance scores, and it’s understandable. Why would your insurance premiums be based on your credit history, something that’s completely unrelated to your driving history? Today we’ll try our best to clear up the confusion.
What is an auto insurance score?
The auto insurance score—also called a credit-based insurance score—is a three-digit number meant to predict the likelihood that you’ll file an insurance claim. The auto insurance score you receive on Credit Karma ranges from 150 to 950, and it’s calculated using data from your TransUnion credit report. However, it is not the same thing as a credit score. Also, it has nothing to do with your driving record.
As these scores came into wide use, the National Conference of Insurance Legislators (NCOIL) Model Act started regulating the use of credit information by insurers in 2007.
Who uses it?
These scores have become more prevalent in the past several years. They’re used by the 15 largest auto insurers, including Allstate, GEICO, Nationwide, Progressive, StateFarm and USAA. The scores can vary from company to company, as different factors are used and weighted in their creation.
How does my credit affect my insurance rates?
While most auto insurers use credit information to help set your premium, they also use other factors, including your driving record as well as market demographics. In fact, the NCOIL Model Act prohibits insurers from amending or setting your rates based solely on your credit profile.
For instance, if you currently have a good insurance premium, you shouldn’t worry about your insurance costs suddenly skyrocketing due to a recent credit blunder. That’s restricted by the NCOIL Model Act.
It’s also important to note that these scores are not used to predict whether or not you’ll pay your premium; they’re meant to predict whether or not you’ll file an insurance claim. In other words, they attempt to estimate future losses to the insurance company instead of your future payment behavior.
The good news is that you can benefit from a good insurance score coupled with a good driving record. You could qualify for a lower rate than you would get based solely on your driving record.
Are insurance scores fair?
It might seem strange that your credit history can be used at all in setting insurance premiums, but there are reports to back it up. A 2007 FTC study found that these insurance scores are effective predictors of risk.
However, there are opponents to the credit-based insurance score. One 2005 study suggests that this method of setting insurance premiums “has a disproportionate impact on consumers in poor and minority communities.”
What if I don’t want my insurance company using my credit?
Whether or not this practice is fair is still up for debate. But the Fair Credit Reporting Actallows for the use of credit information by insurance companies.
If you’re worried about your credit negatively affecting your insurance rates, check with your insurance company to see if it uses credit information. Most large, countrywide companies do, but you may find a smaller, regional insurance provider that doesn’t.
Bottom Line:
If you’re already with an insurance company that uses credit to help set premiums, know that your rate won’t change because your insurer suddenly decides to recheck your credit. In fact, if an insurance company denies you coverage or increases your rates based on information in your credit report, you have rights. Read this American Insurance Association brochure for more information. It’s also important to remember that you could receive lower rates if you have a good insurance score and great driving record.
Have more questions? Find out if they’ve already been answered in our Credit Advice Center.
Bethy Hardeman is the Social Media Manager and Writer at Credit Karma.
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How do you improve this score???
I would also like to know the answer to Evelyn’s question. My auto insurance score is “Poor,” but my credit is excellent. I’ve gotten two speeding tickets in the last 6 years and one was dismissed (I’m waiting on the outcome of the second). That doesn’t strike me as particularly egregious. I’ve not found much on this site to indicate how to raise my Auto Insurance Score except for keeping my credit score high, which I’m already doing.
Hi Sharyl and Evelyn! The auto insurance score uses some of the factors of traditional credit scores, so most good credit behavior should help the auto insurance score. I’d also recommend checking out our Credit Advice Center. Chances are someone else in the Credit Karma community has faced the same issue you have, or has posed a similar question in our online community. If not, don’t be afraid to make your voice heard! Post your own question for others to answer.
Basing your insurance rates on whether you have good or bad credit is BS. How do they determine your risk in filing a claim? I have a spotless driving record, can’t remember when I ever filed a claim w/my insurance, that’s how long it’s been. I have stuff on my credit report that were situations basically out of my control yet I have a “poor” insurable rating? Based on what? The fact that I don’t have a single blemish on my driving record, not even a parking ticket, and I haven’t filed any claims w/my insurance agent. Yeah, sounds like a completely fair system they have working there!
I also have no claims and no at fault accidents but I have poor credit and therefor a poor auto ins rating. My score is 720 which is high on the scale. But still, my rating is poor. It is my belief that this is just one more way to charge more and have a confusing or complicated “research” orientated reason to do so.
I just became aware that my insurance score dropped by 33 points somtime in the last 9 months, at the same time my credit score was improving. Why would this happen? How do I get it reviewed and corrected?
I, too am confused about the insurance score. A year ago I was involved in an accident and it was my fault. I switched insurance companies 6 months ago and my credit report and score isn’t the greatest. It’s actually Fair. My insurance score (according to CK) is great. I’m higher than 71% of users. I don’t get it.
I don’t drive, nor own a car. My car score is 801 and says poor? why. I haven’t owned a car in over 10 years. When I did, I had great insurance, great driving record, and 1 accident that was not my fault; no speeding tickets, etc. So how since I won’t ever own another car or drive again can I improve my score? My regular credit score is good/very good working on getting it great. Anyone able to help answer my question out there?
My credit score dropped the same time I downloaded this App. I had an exelent credit score and now it’s only poor, I think they lower your score after downloading the app.
Thomas, using Credit Karma doesn’t impact your score. We’re making the credit score request on your behalf (known as a soft inquiry), and those types of inquiries aren’t shown to creditors. They don’t affect your credit at all.
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I worked in the auto insurance industry for over 35 years. Insurance company employees NEVER know what your insurance score is…it is typically obtained from FICO, a data vendor, used by the insurance company, and then deleted, not stored, by the company. It may be obtained before a policy in renewed, evaluated, used, and again, deleted.
SMB wrote that his credit is good, but has some speeding tickets. These, like accidents, will affect the insurance score.
Many folks carry the state mandated minimum limits of liability coverage. For some reason, similar to credit history, the limit of liability coverage carried, reveals that drivers carrying HIGHER liability limits, have fewer and less costly accidents. If your policy is only for the minimum required by law, you’re doing yourself a disservice. Increasing the limit from the minimum to the next level available, is not that expensive and may increase your insurance score, resulting in lower premiums.
If increasing one level doesn’t work, go up another one. Your agent can do this for you…call him/her, and ask them to quote you what the next level of liability for you would be, and he/she can tell you that, along with what the additional cost would be. Agents get paid from the premium you pay, give ‘em the chance to earn it.
I see all the questions they seem to be the same as mine, perfect credit great driving record etc, where are the answers to why is my rating high and poor?Where do you get an answer
Does anyone know why I would have an Auto Insurance Score when I have never owned (or rented) a vehicle, driven or been in an accident?
The Auto Insurance Score is calculated based on information on your credit report. It does not include information like your driving record, whether or not you drive at all, or whether you own a car. You can read more in the above article.
My insurance score is 786! I’ve been driving for 35 years and owned my home for 19 years. In that period there have been no tickets, accidents or insurance claims. This doesnt make sense and I find it appalling that they put a score on us based on “PREDICTIONS” that are totally inaccurate historically.
Basing a decision on ones insurance rates based on a credit score is posperous and discrimative. It has nothing to do with ones driving record. We should file a class action suite in this subject and have this process removed.
Total BS. Just a way to get more money from consumers. Total Fraud!!!!!!
This is in reguards to almost everyone question. People are asking why their credit scores are high and the insurance scores are low? The lower your insurance score the better that means that you are less likely to file a claim and insurance companies like that. If your insurance score is getting lower that’s good to because it usually means that your credit score is getting higher.
Okay. So I’ve read thru all this thread. I have excellent credit scores. I have NO blemish on my driving record. I buy mid to top range for all insurance coverages. The only thing I can possibly imagine might be that I’m 66 years old. Why is my insurance risk rated as poor???????
How can I have a bad score when I haven’t any accidents and premiums are paid on time. I have been with this company for 27 years.
In the nearly two years I’ve been using this site, my auto insurance score changed once. How they calculate this score is a mystery, but it doesn’t appear to change as much as the other scores do.
They may use a tiered system where no changes are shown until you meet the next levels requirements, but that seems strange to me as none of the other scores do this. Even the Home Insurance score has minor fluctuations every month.
What’s even better is my score went up after making my one and only insurance claim (someone else did a hit and run on my poor bumper). One would think that would have a negative effect on this score.
It would be nice to know how to improve this score, but credit scoring is a shady practice to begin with and it appears they enjoy keeping it that way.
Sorry for the confusion. We actually don’t calculate any of the scores on Credit Karma– we pull all four scores (TransRisk, TransUnion New Account, Auto, and Home Insurance) directly from TransUnion. It’s for this reason that we decided to write this post- to shed a little light on this score. Hope that helps!