The difference between your credit score and your insurance score is substantial, and it is worth knowing. Your credit score is a number that represents your overall credit worthiness. It encompasses everything you have ever done credit-wise, from your very first credit card to the bills that you pay and rental history. Think of it like your permanent financial record. Whether you are buying a house, applying for a department store charge card or looking to purchase car insurance, your credit score will factor into all decisions. Your insurance score, on the other hand, is based in part on your credit score, but it involves much more pertaining to your insurance history. Take a few moments to learn the difference between the two and how they both affect your insurability.
In order to be approved for auto insurance, information is required that will give the insurer an idea of your history. Aside from demographical information like age, gender, income, etc.—all of which factor into the equation that determines your rates—what is most important to insurers is your insurance score. This is a number that takes many things into consideration: your credit score, the number of car insurance claims you have made, DMV points and your timeliness with payments, to name a few. Insurers use this score in part to determine whether or not they should take on the risk of insuring you.
Credit Score vs. Insurance Score
Your credit score is to car insurance what your SATs are to college admission. It does not necessarily decide your fate, but it is seriously considered. People with bad credit are still able to get car insurance, just like students who scored lower on the SATs get into college, but they may not receive the best rate possible. Credit scores help to determine the insurance score of a customer. If a person’s credit is on the low end, it may reduce the insurance score. If that same person, however, has never made a claim on their insurance, never received a traffic citation and always pays their bills on time, those facts will positively influence the insurance score.
How to Improve Your Score
The best way to improve your credit score is to become credit worthy again. Taking out a small loan or credit card and paying bills on time is a great way to begin to improve your credit. Likewise, changing your driving habits, paying a premium upfront and making no claims on your insurance can help to rebuild your insurance score. These numbers do not reflect you personally; rather, they reflect the risk you pose to companies considering taking it on, whether it is for a credit card or for car insurance.
Don’t think that a credit score is the same thing as an insurance score. They are mutually related, though, and one can affect the other. You should strive to have the highest possible score for both types. If you do, you will be eligible for more favorable rates and be looked upon by either the insurance company or the credit company as more worthy of risk.