What Is the Difference Between Credit-Based Insurance Scores and Credit Scores?

Quick Answer

Your credit report can be the basis for both your credit-based insurance scores and your standard credit scores. Insurance companies use the former to help set your premiums. Creditors use the latter to decide whether to approve applications and choose your account’s terms.

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Credit scores and credit-based insurance scores serve similar purposes—to help companies understand risk. Both types of scores can vary depending on the information in the credit report used to calculate them. However, the two scores are used by different types of companies, have different scoring factors and predict different outcomes.

What Is a Credit-Based Insurance Score?

Credit-based insurance scores are designed to predict the likelihood that you'll file insurance claims that cost the insurance company more than it collects in premiums. Similar to how standard credit scores can affect your borrowing rates, a credit-based insurance score could affect your insurance premiums, including how much you pay for auto, home and life insurance.

What Factors Into an Insurance Score?

There are different types of credit-based insurance scores and they may use different factors and weighting to determine a score. Some insurance scores consider non-credit data, such as information from public records. However, they all also use information from one of your consumer credit reports. Some of the factors included on your credit reports may include:

  • Your payment history of your credit accounts, including payments made on time and missed payments
  • Accounts in collections
  • Your credit card balances and credit limits
  • The age of your credit accounts
  • The types of credit you use
  • How much past-due debt you have
  • Whether you recently applied for credit

As you'll see below, these factors are similar to the factors that affect the credit scores lenders and other creditors use to assess your creditworthiness.

What Is a Credit Score?

Credit scores are also based on your credit reports, but they're created to predict the likelihood that someone falls 90 days behind on one of their bills in the next 24 months. FICO and VantageScore® create widely used credit scoring models that lenders incorporate into their application review process.

Creditors can use these general-purpose scores when reviewing applications for any type of loan or credit card. Additionally, FICO has industry-specific credit scores for auto lenders and credit card issuers. Higher scores indicate greater creditworthiness.

What Factors Into a Credit Score?

Most types of credit scores range from 300 to 850 and different factors can increase or decrease your score. Generally, these scoring factors are grouped into five categories:

  • Your payment history: Making payments on time can help your credit scores, but missing payments, having an account sent to collections or filing for bankruptcy can hurt them.
  • How you're using credit: Using only a small percentage of your available credit on revolving accounts, such as credit cards, can help your credit scores. The percentage is known as your credit utilization rate. Other factors, such as the number of accounts you have with balances and your remaining balances on loans, can also be important.
  • How long you've used credit: The average age of the accounts on your credit reports and the ages of your oldest and newest accounts can affect your scores. Older is better in this case.
  • The types of credit you're using: Having a mix of revolving and installment accounts can also be better for your scores than only using one type of credit.
  • Recent credit activity: Applying for new credit accounts can result in hard inquiries, when creditors check your credit reports to make a lending decision. These might hurt your credit scores a little.

Although the relative importance of each category is known, different actions aren't worth a specific number of points. Instead, the value of a new event—such as opening a new credit card or missing a payment—will depend on what else is in your credit report.

How Are Credit-Based Insurance Scores Different From Credit Scores?

Credit-based insurance scores and credit scores consider similar underlying information, but the scores are different in many ways.

  • The scores predict different things. Credit-based insurance scores predict the likelihood that someone will file claims that lead to a loss for the insurance company. Credit scores predict the likelihood that someone will miss a bill payment.
  • The score ranges aren't the same. Most credit scores range from 300 to 850, although FICO's industry-specific scores have a 250 to 900 range. Credit-based insurance scores may have very different ranges, such as 200 to 997 for the LexisNexis Attract score.
  • Insurers have to consider more than your score. State laws generally don't allow insurance companies to decline applications for new policies or renewals, or set your rates based solely on a credit-based insurance score. Some states don't allow insurance companies to use scores at all. However, creditors can decline your credit application, close your account or lower your credit limit if you have a low credit score.
  • You can't easily check your credit-based insurance scores. You might be able to get your credit-based insurance score if you ask your insurance agent, but it's not always possible. In contrast, it's easy to get copies of your credit reports and scores. You can even use your free Experian account to get your FICO® Score for free.

Other Factors That Can Influence Your Insurance Premiums

Insurance companies often consider many factors when setting your insurance premiums, and the specifics will depend on the company and the type of insurance. For example, with home and auto insurance, your premiums might depend on:

  • Your claim history: Insurance companies can request copies of claims history reports. The LexisNexis C.L.U.E. (Comprehensive Loss Underwriting Exchange) database has auto and homeowners insurance claims from the past seven years. You can check C.L.U.E. reports for free once every 12 months through LexisNexis Risk Solutions.
  • Location: Where you live can affect your home and auto insurance premiums because of differences in crime rates, weather and other factors.
  • The home or vehicle: Homeowners and auto insurance premiums will also depend on the home and vehicle itself. For instance, it will likely cost more to insure a sports car than a sedan.
  • Discounts: You might receive discounts for buying multiple policies from the same company or having certain features in your home or vehicle, such as an anti-theft system.
  • The types and amounts of coverage: You may be able to raise or lower your premiums by choosing different coverage amounts, add-ons and types of coverage.
  • Your policy's deductible: You have to pay your deductible before your insurance kicks in, and having a higher deductible often leads to lower premiums.

Comparing insurance quotes from multiple home and auto insurance companies can be important because they might offer different types of discounts or consider different factors when setting your premiums.

How to Improve Your Credit Scores

Because your credit scores and credit-based insurance scores both depend on the information in your credit report, that's where you'll want to focus if you're trying to improve all your scores. Fortunately, similar actions can help both types of scores.

  • Pay your bills on time. FICO and VantageScore credit scores are heavily influenced by the presence or lack of negative information on your credit reports. If you can avoid negative information, you're well on your way to great scores. The best way to do that is to make all your debt payments on time.
  • Pay down credit balances. How much debt appears on your credit reports, how many accounts you have with balances and your credit utilization rate can affect about a third of your credit scores. The less debt and the lower the balances the better.
  • Use different types of credit. You don't necessarily want to open a new credit account solely to improve your credit scores, but having open revolving and installment accounts can be helpful. You might be able to do this with credit cards that don't have annual fees and fee-free lending circles.
  • Strategically apply for credit. Limiting how often you apply for new credit—and the resulting hard inquiries—can also be important. If you're looking for credit, try to get preapproved with a soft inquiry before submitting an application.

Managing All Your Credit Scores

Because the same information largely influences both credit scores and credit-based insurance scores, the same actions can improve both types of scores. And although you can't easily check your credit-based insurance scores, you can use Experian's free credit monitoring and score tracking to monitor your progress.

Experian members can also review credit card and personal loan offers matched to their unique credit profiles. And use the free auto insurance comparison feature to compare insurance quotes with their current coverage.