Understanding car insurance scores

A credit-based insurance score, or insurance score, is used by insurers to predict your likelihood of filing a claim. This score is primarily based on your credit report. Since the 1990s, insurance companies have used credit-based scores to better estimate risk, with each insurer using its own formula to define what constitutes a good score.

While some states like California, Hawaii, and Massachusetts don’t allow the use of credit data for insurance rates, and others like Utah and Oregon have certain restrictions, many insurers in states that allow it find car insurance scores helpful. Approximately 95% of insurers in these states use these scores to better assess risk and provide more tailored insurance options.*

While both rely on information from credit bureaus, car insurance scores and credit scores serve different purposes.

• Credit score: Predicts your likelihood of repaying a loan

• Car insurance score: Predicts your likelihood of filing a claim

Factors used to determine your score can be the same, just weighted differently. That said, there's certainly a correlation. In some cases, poor credit may increase your car insurance rates.

Car insurance scores are calculated using information from your credit report. Factors that can influence your car insurance score include:

• Payment history

• Outstanding debt

• Credit history length

• New credit applications

Your driving record, vehicle type, and coverage limits also play a role in your insurance rates. Keep in mind, insurance companies use their own methods to calculate scores, but these methods often share similarities with traditional credit scores.

While your credit report is always changing, re-evaluating your insurance score varies by state. To protect your score, it's essential to monitor your credit report regularly. Resources like annualcreditreport.com offer free credit reports, and you can also consider using a credit monitoring service.

Taking charge of your credit health and driving habits can influence your car insurance score and potentially save you money on premiums. Here are some tips to follow:

• Make all payments on time

• Reduce outstanding balances where possible

• Regularly review your credit report

• Talk to a financial advisor if you have questions

Improving your driving record can also help lower your rates. Consider taking a defensive driving course if you've had accidents or moving violations. All drivers should practice safe driving habits.

You could also explore adjusting your deductibles. Raising them can lower your premiums, but be prepared for higher out-of-pocket costs in case of an emergency.

Finally, ask about discounts. Many insurers offer savings for insuring multiple vehicles, obtaining an advanced quote, or bundling policies. Discounts vary by state. A Dairyland® insurance representative can guide you through these options or provide a free auto insurance quote if you’re looking for cheap car insurance.