Insurance score: What is its importance and how does it affect you?

Do you know that your insurance score actually influences your insurance policy? The insurance score is a numerical figure that determines how much you need to pay for buying an insurance policy. It is also considered as credit-based insurance score or insurance risk score and is calculated on the basis of your financial records. Your score is good if it is above 760 and it is regarded as a bad score if it is less than 600.

Importance of your insurance score

Your score determines the amount of premium, which the insurance companies would charge for your policy. Therefore, it helps the insurers to predict your likelihood to file claims. A consumer with lower insurance score is at a higher risk of filing an insurance claim. So, the companies will charge increased premium rate in comparison to the average rate of premium. Insurance score is also required when your policy is up for renewal. If your score is bad, the companies might change rates and also deny coverage.

Factors affecting your score

There are a number of factors that affect your insurance risk score. They are discussed briefly in the following lines.

1) The amount you owe.
2) Your payment history.
3) Length of your credit history.
4) Types of credit you�re using.
5) Number of recently opened accounts.

Factors not affecting your score

Your score is not affected by the following factors.

a) Soft inquiries made by you regarding your score.
b) Information about your employment.
c) Your age, marital status and the location of your house.

However, the insurance companies consider these factors to decide upon the amount you need to pay towards the coverage of your policy.

How to access your insurance risk score

Insurance bureaus generate insurance risk scores and your insurance companies have access to these scores. So, your insurance company might provide you the details, especially if your premium gets negatively affected by your score. You can also purchase your insurance score from the companies that calculate it. Apart from the insurance bureaus, there are primarily 5 sources that generate insurance score. They are Fair Isaac, Experian, Equifax, TransUnion and ChoicePoint. Your insurance agent can also help you know about your score and explain the reasons behind your low score.

Models for calculating insurance scores

Insurance scores are mainly calculated on the basis of 3 models. They are Fair Isaac model, in-house model, Experian model and the ChoiceTrust model developed by ChoicePoint. However, some insurance companies use their own scoring models. Therefore, it is really difficult to know which scoring model your insurer would use. So, in order to get meaningful information, it is better to ask your insurance company as to which model it uses.

How to improve your score

If you are not satisfied with your present score, you can increase it by the following means.

� Try to pay your bills and credit card debts on time.
� Do not close your old credit accounts.
� Try to keep your credit utilization rate less than 35%.
� Try to establish your credit history as early as possible.
� Apply for new cards only if you need it.
� Always rebuild your credit if it gets damaged.
� Credit can increase your score if you�re able to manage them properly.
� Do not allow your lenders to view your score more often.
� Try to have a mixture of installment loans (car loan, mortgage, etc.) and credit.
� Review your credit reports at regular intervals and fix the errors immediately.

Similarities between insurance score and credit score

The following lines discuss the similarity between your credit score and your insurance score.

i) Both of your scores are calculated on the basis of your credit information.
ii) These scores can both save or cost you a huge amount of money.
iii) Both these scores are governed by Fair Credit Reporting Act (FCRA).

How insurance score differs from your credit score

Though both the scores are calculated on the basis of your credit information, yet they are different in a number of ways, which are discussed below.

A) Your credit score is used by financial institutions, whereas your insurance risk score is used by insurance companies.
B) The credit score determines your creditworthiness, whereas insurance score determines your likelihood of filing claims.
C) Credit score has an influence on your loan application, but insurance risk score influences your insurance premium and coverage.
D) Sometimes same financial data weigh differently in calculating your credit and insurance risk scores.

Your insurance risk score is not fixed and it depends on certain items found on your credit report. Therefore, you should check your insurance scores and credit reports at regular intervals. It will help you to fix any error and also improve your scores, if required.

Useful resources:

• Life insurance – Apply online for Life Insurance and evaluate Life Insurance Premiums of different life insurance policies.
• Caravan Insurance- Club Care Insurance is the long established provider of insurance for members of The Camping and Caravanning Club.
• Holiday Home Insurance- Holiday Property Insurance and Second Home Insurance.