June 19th, 2012

What’s Up With My Auto Insurance Score?

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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 and 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 Act allows 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.

is the Social Media Manager and Writer at Credit Karma.

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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.

208 Comments

  1. All I want to know is what Insurance company’s do not use credit scoring! it’s proving vary difficult top find any!

    Larry at 5:27 am on March 8, 2015

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