Low Credit Scores and Insurance

Are you pooped – just thinking about all the reasons your credit score is costing you money?

Here’s another one!  Did you know that you don’t just have a credit score – you also have an INSURANCE SCORE?

Insurance is purchsed to protect you against the kind of big expenses that could otherwise wipe out all of your assets… it’s not there to pay for the little stuff, and this is why you have a deductable.

If you’ve had a car totaled, or a house burn down – or you’ve been sued from an accident – then you understand the role insurance plays.  People who don’t really understand the way insurance works often try to shift as much risk as possible to their insurer – by choosing the low deductbiles.  This is the best way to have very high premiums.

The Insurance Score itself though is what really drives your premiums higher – no matter what your deductable is.  There are very few written reports on EXACTLY what the insurance agencies use in creating this score – but Fair Isaac says these are some of the guidelines:

• 40% of the average insurance score comes from payment history.  That compares with 35% with the “credit” score we are use to using.
• 30% is based on credit utilization.  This is roughly the same percentage your credit score uses.
• 15% of an insurance score has to do with the types of NEW CREDIT you’ve been granted recently.  This also takes into account your inquiries – your “credit” score only weighs this at 10% of the score.
• 10% of the insurance score has to do with the length of time you’ve had credit.  So if you are “new” to the credit game – you are not hit quite as hard – making it a bit easier to get insurance.
• 5% of your insurance score measures types of credit you use.  This is quite different from your “credit” score.

As you can see, according to Fair Isaac anyway, your insurance score (and thus your premiums) are based heavily on your payment history.