Auto Insurance Scores

An insurance score is a number based on your credit history that is used to predict your likelihood of filing an insurance claim and costing an insurer money. Auto insurance scores, also called credit-based insurance scores, can be used to set car insurance premiums everywhere except for Massachusetts, Hawaii and California.

The credit-scoring company FICO created the first insurance scores in 1993, and today FICO estimates that 95% of all personal insurers take insurance scores into account. FICO scores are based on five categories: 40% past payment history, 30% current level of indebtedness, 15% length of credit history, 10% new credit, and 5% variety of credit types. Multiple studies, including one by the Federal Trade Commission, demonstrate that the scores effectively predict risk for insurers, which is logical because individuals who responsibly handle their finances figure to be equally responsible with their cars or homes.

Insurance Score Companies

Insurance scores rely on information from your credit reports and are formulated by three main companies: FICO, LexisNexis, and TransUnion.

• FICO insurance scores range from 250 to 900.

• LexisNexis scores range from 300 to 950.

• TransUnion scores fall between 150 and 900.

In general, insurance scores of 770+ are considered good, but the specifics vary based on the type of insurance score, given the different ranges.

How to Raise Your Insurance Score

Your credit information strongly influences your insurance score, so raising your credit score can decrease your car insurance rates. You can get personalized advice on how to improve your credit score, as well as how long it will take, using the Credit Analysis feature of your free WalletHub account.

Controversy Over Insurance Scores

Since the connection between credit history and insurance risk isn't immediately clear to the average consumer, many people and advocacy groups disagree with the use of insurance scores. Even the FTC admits that insurance scores correlate with race and ethnicity, which has led to some protections for consumers.

For example, in states like Texas, insurers cannot refuse you coverage or increase your premium if your score decreased due to divorce, temporary unemployment, identity theft, the death of a close family member, or a similar life event. You can send a request in writing to an insurance company if one of these events affected your insurance score.

Similarly, New York law requires insurance companies to ignore credit as a rating factor for consumers with no credit, or to handle these consumers in another approved way, like treating the lack of credit the same as a neutral score. To find similar regulations in your state, visit its department of insurance website.

No-credit-check car insurance companies are rare, since it's estimated that 95% of insurers use credit to calculate premiums where allowed by state law. Examples of car insurance companies that don't check credit include Dillo Insurance in Texas, Equity Insurance in Oklahoma, and Cure Auto Insurance in Pennsylvania and New Jersey. No-credit-check car insurance companies tend to be relatively small and operate at the regional or local level. Because their customer base is mostly high-risk drivers, they are also likely to be more expensive than companies that check credit.

It's important to note that some companies will not require your Social Security number for an initial quote. Other companies will require an SSN right away. Regardless, most companies will check your credit history after providing an initial quote and adjust the estimate accordingly. If a company gives you the option of providing your SSN for an initial quote, it's a signal that they will check your credit history later.

Credit's influence on your premium varies by state and insurance company. For instance, laws in California, Massachusetts, Michigan, and Hawaii prevent insurance companies from taking credit scores into account. Some other states, like Washington, forbid insurers from denying a customer based only on credit history. You can contact your state's insurance department to request up-to-date information on state car insurance laws and no-credit-check car insurance companies.

Tips for Getting Car Insurance With Poor or Limited Credit

The best tactic if you're looking for insurance with questionable credit is to compare quotes, as credit history is only one of the many factors that insurers may use to calculate premiums. Insurance companies also consider driving history, ZIP code, and demographic information in states that allow it. Shopping around for car insurance won't hurt your credit further, either, as insurance companies do not use a hard credit inquiry to generate quotes or set your premium.

When shopping around, give some serious consideration to usage-based insurance because the price is based mostly on your driving habits, rather than anything a credit check might turn up. Companies like Root Insurance and Metromile base premium prices entirely on usage, for example. Similarly, some large insurers like Progressive have usage-based programs that could lead to a discount based on how often and how safely you drive. However, Progressive and other large companies will still factor your credit history into the original premium.

Another option for drivers with poor credit is nonstandard insurance, which caters to drivers considered “high-risk” by insurers. Most major insurers have nonstandard subsidiaries, and some specialty companies like The General focus mainly on high-risk drivers. Coverage may not be cheap, but at least you'll be able to drive legally.

Getting insurance quotes does not affect your credit score, so you can comparison shop for car insurance coverage as much as you want. Your credit won't be affected, no matter how many quotes you get. Car insurance companies do check credit reports to give quotes, but they use a “soft pull.” Unlike a hard inquiry, soft pulls do not affect your credit score. Lenders checking your credit history after the fact won't even be able to see the soft-pull inquiries from auto insurance companies on your credit report, though they'll be visible to you.

Car insurance companies do not need a hard pull because they are not lending customers money. Instead, they use the soft pull to determine a driver's auto insurance score.

Your auto insurance score is used to predict the odds you'll file a claim, while your credit score is used to predict the odds you'll default on a loan. Car insurance companies have found that people who are less responsible with credit also tend to have more accidents. They use these patterns to calculate a three-digit number based on information from your credit report, such as your:

• History of on-time payments
• Credit limit usage
• Total debt
• History of foreclosure, bankruptcy, or collections

There are a few exceptions to this, because Hawaii, California, and Massachusetts don't allow credit history to affect car insurance. But for most Americans, having bad credit or no credit can cost you when it comes to car insurance premiums. For example, people with no credit pay an average of 67% more for car insurance than people with excellent credit, nationwide, according to WalletHub research. And the impact of below-average credit will affect drivers' car insurance premiums much more in some states than others.

Fortunately, many states have laws prohibiting insurance companies from denying coverage, canceling an existing policy, or increasing rates based solely on credit-based information.

A good TransUnion auto insurance score is in the high 700s or above. TransUnion notes on its website that 770 is generally considered a good insurance score, but there are several different types of insurance scores with different score ranges. TransUnion auto insurance scores, also known as TransUnion TrueRisk scores or TransUnion Insurance Risk scores, range from 150 to 950, unlike typical credit scores.

On the other hand, LexisNexis insurance scores range from 200 to 997 and are considered good starting at 776. In addition, FICO scores fall between 300 and 900, with 700 and above classified as good. But it's important to remember that what these insurance-scoring companies think is a good score might not be exactly what an insurance company considers good enough to merit the lowest premiums.

TransUnion auto insurance scores are calculated using information from your credit report, just like your credit score. But insurance scores are designed to estimate your risk for insurers, not lenders. In most states, insurance companies can use your credit data as a factor in setting your premium, meaning that a higher score will save you money. On average, having no credit will cost you 67% on insurance compared to having excellent credit.

As a result, improving your credit score will help raise your insurance score, thereby decreasing your car insurance premium over time. With that in mind, make sure to check your latest credit score for free and use WalletHub's Credit Analysis tool to get personalized improvement tips.

Yes, car insurance companies check credit, except in Hawaii, California and Massachusetts, where it is illegal. Getting car insurance quotes and buying a policy will not hurt your credit, though, because insurers use what's called a soft pull, rather than a hard inquiry. The credit-scoring company FICO estimates that 95% of car insurance companies use insurance scores as a factor in determining prices.

Insurance scores are different than credit scores, but they rely on the same basic information: your credit history. The difference is that insurance scores are designed to determine your risk of filing a claim using data from consumers' major credit reports.  

Your insurance score is only one of many factors that affect your car insurance rate, but it can carry a lot of weight. Drivers with no credit pay 67% more on average than drivers with excellent credit. In New Jersey, the state where credit affects car insurance the most, rates are twice as expensive for drivers with no credit compared to those with excellent credit.

Car insurance companies have good reason to check credit, since the Federal Trade Commission has shown that insurance scores effectively predict risk. On the other hand, the FTC admits that insurance scores are correlated with race and ethnicity, leading some states to ban their use. Similarly, some states, like Washington, forbid insurers from denying or cancelling a customer based solely on credit.  

No-credit-check car insurance companies do exist, but they usually serve smaller geographical areas. It's also important to note that if you have a low credit score, a no-credit-check company still might not be the cheapest option, since insurers consider a variety of factors in determining premiums.

A good credit score for car insurance is 700 or higher, and scores of 750 and above are considered excellent. People with good or excellent credit tend to pay much less for car insurance than drivers with no credit or bad credit. But even though you can tell a lot about your potential car insurance costs by checking your normal credit score, it's important to note that car insurance companies actually use credit-based auto insurance scores, which are a bit different.

Auto insurance scores are different from credit scores because they are designed to calculate your risk for insurance carriers rather than lenders. Like traditional credit scores, insurance scores are based on the contents of one of your major credit reports. But the categories are weighted differently than in your normal credit score, and the score ranges aren't always the same.  

While credit scores range from 300 to 850, FICO Auto Scores fall between 250 and 900. A good score is anything above 700. LexisNexis Attract Auto Insurance Scores go from 500 to 997, and scores above 776 are considered good. Finally, TransUnion auto insurance scores, officially called Insurance Risk Scores – Auto Model, range from 150 to 950. TransUnion doesn't specify what a good score is within its own range, but it does say that 770 is generally a good insurance score.

Although auto insurance scores are important, every insurer uses them slightly differently, meaning that you should take the exact number with a grain of salt. Additionally, insurers in California, Hawaii, and Massachusetts are legally banned from taking credit information into an account. And in every state, many other factors affect car insurance rates, meaning that an insurance score is only one piece of the puzzle.

Unlike credit reports, you are not entitled to free information on your insurance score. However, you can purchase access to your insurance score from LexisNexis. Checking your credit reports and correcting any errors is also a smart move, since improving your credit score will raise your insurance score and lower your premiums.