November 9th, 2010

Insurance Scores: Believe it or not, your credit affects your insurance premiums

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insurance policy

Here is yet another item to add to the list of what is influenced by your credit health: your insurance.

How much you’ll pay for insurance premiums, as well as your access to homeowner and car insurance, is directly affected by your credit history.

It’s called your insurance score, and while many are unaware that insurance companies use your credit history when making insurance decisions, now is the time to start paying attention.


What is an insurance score?

Just like credit scoring models, insurance scoring models produce a unique numerical insurance score that insurers use to predict risk and calculate your premiums.

Similar to the way lenders use credit score models, insurance scores also 1) look at your credit history, 2) use a scoring formula based on aspects of your credit report and history, and 2) predicts the level of insurance risk you represent.

While insurance score models differ from company to company and state to state, your insurance score will affect whether you qualify for insurer’s underwriting programs and how much you will pay for insurance premiums.

The practice of using credit histories to set insurance rates has been around for 15 years. Some states, like California, don’t allow credit history to be used at all for insurance purposes. There is also an on-going debate in several states as to the legitimacy of using credit information to make insurance decisions, and whether credit history and responsibility can be positively linked.

What is the correlation between credit and insurance?

There is an assumed correlation between credit behavior and the likelihood of an insurance claim, of your credit history being a predictor of your future financial behavior. The basic assumption is that those with good credit are less likely to make a claim, suffer a loss, and cost insurers money than a poor credit consumer.

Your financial stability—based on factors like your payment history and debt level— suggests to insurers the level of your insurance risk. Insurers then calculate rates and premiums equal to your risk level. Technically called the “loss ratio relativity”, the model measures how much they stand to lose in claim money versus how much they stand to collect in premiums. If the model calculates that your insurance claims may be higher or lower than average, insurers price your premiums accordingly to make sure profit is still made.

As with most credit-related models, it is not an exact science. But if insurance companies are pricing your policy based on your credit, your wallet will suffer unless you build better credit.

I have poor credit… what do I do?

Those with less-than-perfect credit can look on the bright side: your insurance score isn’t the sole determinant of your insurance policy and rates. Non-credit factors such as your driving history, past accidents, where you live, and claims history are also considered.

However, now you have an additional reason to better your credit health. Bettering your chances of the best insurance policy and rates is the same true-and-tested strategies of building good credit. Your best bet is to improve your credit health and likewise perk up your insurance score.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

47 Comments

  1. I have a TransRisk score of 727 (good), a Vantage score of 803 (B), and I haven’t had an insurance claim in decades. Yet you list me as being a “very poor” insurance risk (765). Why? What on earth have I done to merit a “very poor” score when everything else is favorable?

    Clairissa at 8:08 am on December 16, 2010
  2. Something seems to be off with the way CreditKarma computes the insurance score. For me, Transrisk = 90th percentile, vantagescore=97th percentile, but insurancescore=32nd percentile.

    If the driving history is not taken into account, how can the difference be explained?

    CriCri at 11:19 am on December 16, 2010
  3. Would my credit score drop from 760 to 744 because I added a driver on my car insurance policy?

    viewer12345 at 3:01 pm on December 16, 2010
  4. I’m just brainstorming here, but I have a good credit score of 735 but am in the poor insurance risk category according to this scoring model. My two ideas about why this might be is, first, that the inputs may be differently weighted. I still have a fairly large amount of credit card debt, but my ratios are good and my payment history spotless. Maybe for auto risk they look at the actual cash amount of debt outstanding on its own? Second, the home page on Credit Karma describes the score as a measurement of the risk that the insurance company will lose money on a claim that you file. I have a ridiculously low insurance premium, so any claim I file will automatically send the insurance company into a loss position on my account. Maybe the actual current premium amount is factored in. That wouldn’t make sense really, because if you’re using the score to determine the rate, the rate can’t be one of the inputs. It makes the score a moving target. Anyway, like I said, just brainstorming…

    Micah at 10:23 am on December 18, 2010
  5. I’m also puzzled as to how my Transrisk and Vantage scores can be in the top percentiles, but the insurance score is only mediocre. Can you explain how the different components of the insurance score are weighted, and how I can improve it?

    HeadWrench at 10:32 am on December 18, 2010
  6. I don’t think CreditKarma’s insurance score assumptions can be trusted.

    Mine is “very poor”. Yet I’ve been with Wawanesa for nearly 6 years with no lapse. The only thing that caused my rate to go up recently was the purchase of a new car. No “punishment” hikes, nothing. And their premium is significantly lower than any other insurance agency.

    To the point, I think the score *might* be what the larger organizations are using to assess the premium – State Farm and GEICO quote nearly twice what Wawanesa does. But that’s fine. I’ll be with Wawanesa for the foreseeable future, and if they are rightfully using driving history to assess my risk instead of my credit score, they’ll continue to get not only my business but my referrals. Screw the big ones.

    ReVeLaTeD at 6:39 am on December 23, 2010
  7. I am upset. I have never had an accident and never had filed a claim. Just because my credit isnt that great doesnt mean Im at risk for filing a claim!

    Angela at 3:39 am on December 26, 2010
  8. My credit score is 517. Yet my Insurance score is decent at 851. I’ve also had a minor accident in the past 3 years & my drivers license suspended for not paying a ticket, but reinstated as soon as I realized it.

    If the State forces you to get car insurance, the State should also offer LOW COST auto insurance & should mandate insurance companies NOT to insure by a credit score as was done for YEARS – and the insurance companies STILL made billion dollar profits. This isn’t right. I have never lapsed my auto insurance – ever. Yet, I have had life problems beyond my control which has brought my credit score down from the 900’s. Car insurance, forced by the State, should NOT be subject to a credit score. This just is not right. It worked without credit scores before – there’s no reason why it shouldn’t work again.

    Seeker at 6:30 am on December 27, 2010
  9. I guess I’m not alone… my credit score is Good/B, yet my AutoScore is “very poor” – I always pay off loans/bills/credit cards on time, I’ve not had a claim against auto insurance (or home) but as a fairly recent “import” to the US I’ve (on paper) only had a credit and driving history for 4 years (despite actually having 25 years history, just spread across 3 countries)

    Is the score accurate at the moment (or still going beta tweaks) or is this something a consumer statement on the credit report might help (at the moment we don’t have the break-down of advice that the Transrisk data gets so it’s hard to know…)

    Offbeatmammal at 12:32 pm on December 27, 2010
  10. This need to base everything on one’s credit score nonsense is getting out of hand. Did it ever occur to the insurance companies that correlation doesn’t prove causation, or that maybe they’ve just got it backwards (credit scores drop AFTER claims due to massive unplanned expenses)? If we ever do locate a habitable planet in another solar system with evidence of a fallen civilization forget nuclear war or global warming. I bet the collapse will have been caused by their financial industries driving them morally and economically into oblivion.

    Tim Lister at 3:12 pm on January 10, 2012
  11. I don’t have a car and don’t plan on having a car so why should this insurance rating apply to me?

    Donna at 11:10 am on June 8, 2012
  12. How is it I can own to homes and two nice cars, owing nothing on any of them, yet still have a score of 603? Pourquoi?

    Kyla at 11:28 am on June 10, 2012
  13. I have had State Farm Insurance for 12 yrs allways pay my premium, have had one wreck that was my fault 9yrs ago (DID NOT MAKE A CLAIM) NEVER A DUI my last traffic ticket was 1987, My insurability is VERY POOR!!! WTF?????????????? I owe NOTHING on my home, Nothing on credit cards, and only a car loan through STATE FARM BANK on my new Mercedes with a balance of $11,341 because I put THOUSANDS down on the car, NEVER a claim on my home, Never a claim on my antique car. What a bunch of bullshit Time to DROP STATE FARM AND THERE PRICE RIGGING INSURANCE

    Thomas at 9:54 pm on June 11, 2012
  14. BTW acording to State Farm Insurance I am one of there Prefered Drivers and I even get a discount for it, funny they would give that to someone like me who is listed on here as Insurability “VERY POOR”

    Thomas at 9:59 pm on June 11, 2012
  15. I just signed up for this and while my FICO score is fair/good, my insurance score is poor. No tickets or accidents in 30+ years. I see everyone else has the same problem. I think I’ll just go back to FreeCredit.com. No questionable material there. Yes, I’ll pay the $16.95 a month, but no problems with them.

    Denise at 10:01 am on June 12, 2012
  16. I’m wondering if the insurance credit is based on whether or not you fully own your vehicles or not and also how long you have maintained car insurance without losing it. The less you owe on a vehicle, the higher your score maybe? Just a thought.

    Beth at 2:35 pm on June 12, 2012
  17. As the article discusses, your insurance score isn’t based on your driving record, it’s based on aspects of your credit history. It gives you an idea of your insurability, but it’s only one piece of the puzzle. Other non-credit factors–like your driving history, past accidents, where you live and claims history–are also considered.

    bethy at 2:55 pm on June 12, 2012
  18. The insurance score on Credit Karma is calculated by TransUnion. It uses factors in your credit history to attempt to predict whether or not you’ll file an insurance claim. It’s been proven that there’s a correlation between credit scores and insurance claims filed. (Read more about that here: http://www.creditkarma.com/article/insurance_score_impacts_your_car_insurance) However, your insurance score is just one factor that insurers can use. They can (and will) look at your driving record and demographics, too.

    bethy at 3:02 pm on June 12, 2012
  19. As an owner of an insurance agency (State Farm), this has no merit whatsoever. Insurance companies base your premium on many factors..usually driving record, accident history. Not sure where Credit Karma is coming up with “insurance score”. Bogus!

    Shanna Reyes at 3:34 pm on June 12, 2012
  20. something is truly WRONG WRONG WRONG ! along with others, credit karma is giving me a 788 (excellent) but a POOR auto insurance score .. hello ?? i have been driving for 10 years, NO ACCIDENTS, NO CLAIMS, low low mileage as car is only driven in the neighborhood .. someone answer me PLS ! note the comments of the state farm agency ..

    di at 5:44 pm on June 13, 2012
  21. Keep in mind that your auto insurance score has nothing to do with your driving record. It’s based on information from your credit report, but it’s calculated differently from your credit score. Plus, it’s not the only tool used by insurers (such as Progressive, Liberty Mutual, Nationwide) to gauge your insurability. They’ll definitely check out your driving record (sounds like yours is great!) and demographics in your area. If you have a good insurance premium now, you don’t have anything to worry about.

    bethy at 9:56 am on June 14, 2012
  22. Same here. Insurance scores of 749 (very poor) and now 797 (poor). How are these bad scores if the range is from 150-950? (I don’t really care, I’m very happy with my current premium.)

    Credit scores fine (above 700). No accidents/tickets- although it’s unclear as to whether this info is even considered.

    As another person notes, clarification of this new feature would be greatly appreciated!

    edward at 2:56 pm on June 16, 2012
  23. Hi, Edward. You have nothing to worry about if you have a good premium. These scores are used in tandem with other factors, and don’t include your driving record at all.

    To your last comment, I’m working on a new blog post this week that will hopefully better explain auto insurance scores, so stay tuned!

    bethy at 11:24 am on June 18, 2012
  24. I don’t understand my Insurance Rating. I’m not late, the only claim was when someone HIT US and the other company paid.

    What’s the deal!?

    Peri Aplin at 8:55 pm on June 19, 2012
  25. Your auto insurance score has nothing to do with your driving record. Here’s a blog post that might help explain it better: http://blog.creditkarma.com/insurance-scores/whats-up-with-my-auto-insurance-score/

    bethy at 10:19 am on June 20, 2012
  26. My boyfriend J.Recently added me to his car insurance. My INSURANCE SCORE isn’t anything to brag about “if u knw what mean” Will his new rate be alot higher if I had Poor Credit?

    Brenylee at 10:30 pm on June 25, 2012
  27. This may be the single most outrageous ripoff the insurance industry has been ALLOWED to perpetrate on the American public.
    Hundreds of thousands of wage earners were unjustly targeted by the insurance industry to BOOST PROFITS. Through no fault of their own they lost their jobs due to the economic meltdown.
    No job = poor credit.
    Write, email, and drive your congressman or woman crazy until the take action against the BLOOD SUCKING THIEVES!

    gary1962 at 8:53 am on June 26, 2012
  28. Submit your question to our Credit Advice Center (http://www.creditkarma.com/all/advice), where others in similar situations may be able to help you out.

    bethy at 1:56 pm on June 26, 2012
  29. It’s time for all of us to take a stand. When are we, as a group going to put a stop to all of this nonsense. We the middle class are being taken advantage of and ripped off at every turn.

    Tax this, raise this, new tax for this. WTH!! No wonder why we are slowly disapearing as a class of people and more of us being forced into the soup lines. A credit score to determine your driving rates, are they kidding. This corporate greed has to stop or we soon will be speaking Chinese. I’m a disabled Vet, and live on a fixed income, however we continue to raise prices, taxes and everything else and fail to provide any increase to disability benefits. This country needs a fresh start and we need as a society to vote all of the current democrats and republicans out and put a whole new class of concerned citizens into office.

    Do aways with all of their perks and put people in that want to contribute.

    Daniel Tamewitz at 10:01 am on June 27, 2012
  30. The higher the number the better the score or vise visa?

    Frances at 8:08 am on June 30, 2012
  31. Yes, the higher, the better.

    bethy at 10:44 am on July 2, 2012
  32. Never had an accident or tickets, auto score phony.

    Morgan at 12:27 pm on July 3, 2012
  33. Some of you irate drivers may be from California. In California it is illegal to use a person’s credit history in rating you for auto insurance. However, it may be used for homeowners or renters insurance. I am not sure what other states also ban the use of credit ratings for auto insurance purposes but I am sure there must be others.

    Paul at 1:24 pm on July 3, 2012
  34. I looked into buying a home last summer, I was 24, & had a credit score of 720 but lost my job in december & now my score is “fair”. Pretty upsetting since I’d still like to buy a home in a year or so (just got a job) but I as well have a poor insurance score & don’t understand. I’ve had no late payments, no accidents or claims, not even a ticket on my record. I guess maybe cause my credit score isn’t that well now, but before I lost my job I paid everything on time & with smaller things like a zales card I’d pay on time for a few bills then pay off the rest. Hopefully I get my score back up.

    Darcy at 8:15 pm on July 4, 2012
  35. Remember that your insurance score has nothing to do with your driving record. Check out this article for more info: http://blog.creditkarma.com/insurance-scores/whats-up-with-my-auto-insurance-score/

    bethy at 9:51 am on July 5, 2012
  36. My auto insurance score is in the 800’s, now explain to me how that makes me very poor for insurance?

    Lawrence at 10:48 am on July 7, 2012
  37. I usually don’t go for freebees- again I was right. This is just a site to get you to sign up for a credit card. I just refied in 2010 with excellent credit and have no cc bills -paid off, mortgage never late and paid off car last year. Basically no bills and this site says I am poor!

    Logging off and suggest others do the same

    Michele Massey at 10:24 am on July 8, 2012
  38. Hi, Michele. Sorry you had a poor experience with Credit Karma. Remember that you have dozens of credit scores. We show you your TransRisk score from TransUnion, VantageScore and auto insurance score, all for free. But we try to drill down into those scores to show you the factors influencing your scores. That’s how you can become better empowered about your credit life.

    bethy at 10:03 am on July 9, 2012
  39. The Karma Insurance Score is an absolute joke. They say it is based on credit score, not driving record. Well, my credit score is consistently Excellent…yet showing as “poor” on the insurance score. When it comes to insurance….I address that with the insurance company directly that I have been with 25+ years with home, autos and other, no accidents, tickets, etc, so have discounted rates for clean driving record, excellent credit etc. At one point told them my rates were too high, and either reduce them or I go somewhere else -> guess they considered me a good risk customer (obviously) and reduced my rates. I cannot help but wonder if the Karma insurance score is being driven by insurance companies on the backside with advertising dollars to get business from folks who feel they are poor insurance risks because of the score. Again, the Karma insurance score is a joke.

    M S at 12:20 am on June 6, 2013
  40. Jenna

    Credit Karma does not calculate your auto insurance score. It’s pulled directly from TransUnion. You can read more here: http://blog.creditkarma.com/credit-101/insurance-scores/whats-up-with-my-auto-insurance-score/

    Jenna at 10:56 am on June 6, 2013
  41. If the insurance company is making money of Karma rating each of you. Guess what, Karma is also. They are getting paid to rate each of you low so they can justify not offering you the best rate and using this Karm Rating BS as a cope out and excuse to increase the rate. I could appreciate it more if they were just honest and admited their hurting and/or market soft so we gone get the increase while we can.

    yollie at 2:02 pm on June 12, 2013
  42. I think we should write to our congress. It’s one thing if you credit score is very low, but when one is carring 725+ credit score and told their insurance rating is low we need to seek the help of our state representatives!!!

    yollie at 2:07 pm on June 12, 2013
  43. Jenna

    Yollie, we do not calculate the auto insurance scores you see on Credit Karma. We pull it directly from TransUnion. You can learn more here: http://blog.creditkarma.com/credit-101/insurance-scores/whats-up-with-my-auto-insurance-score/

    Jenna at 4:22 pm on June 12, 2013

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