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Auto insurance scores impact insurance premiums

First of all, Credit Karma provides much of the information you need to know about auto insurance scores, where they explain that on their site:

  • Auto insurance scores are 3-digit scores calculated using information from your credit report that are designed to predict the likelihood that you will file an insurance claim
  • These scores are not the same as credit scores and don’t factor in your driving record
  • Insurance companies in most states can use your score — in conjunction with your driving record and other factors — to help set your premium
  • California, Hawaii and Massachusetts do not allow insurance companies to use credit-based scores to influence your insurance rates

As you can see, Credit Karma gets your auto insurance score from the credit bureau TransUnion. According to TransUnion, insurance scores typically range from 200 to 997, with anything above 770 being considered a good score.

Credit scores, on the other hand, generally range from 300 to 850. What constitutes a good credit score is up for debate, but our credit expert says that anything above a 760 will generally qualify you for the best rates.

Other credit bureaus like Equifax and Experian also calculate insurance scores based on your credit files.

How Are Auto Insurance Scores Calculated?

A spokesperson from Credit Karma told us that auto insurance scores are calculated using information from a credit report, and can include:

  • The age of your credit history

  • The number of accounts you have in good standing

  • How many payments you’ve made on time

  • How much of your available credit you’re using

They added that auto insurance companies will have different standards for what they consider a “good” and “excellent” score.

How Can You Improve Your Auto Insurance Score?

According to Credit Karma’s representative, “Responsible activity can increase your insurance scores. Making all of your credit card payments on time, keeping your credit utilization down and having numerous accounts in good standing can help your scores. You may also want to keep your oldest accounts open to show a long-established track record.”

On the other hand, doing the opposite of any of those things will lower your insurance scores. You should avoid making payments after the due date and allowing accounts to go to collections. You also want to avoid a high credit utilization ratio. Too many recent applications for new credit may hurt your scores, as well.

Final Thought

Although you might not have been aware that auto insurance scores even existed, you should know that they can impact your financial life. Having a score that’s too low could mean that you’re paying too much for car insurance, even if your driving record is spotless.

Since auto insurance scores are so closely tied to your credit record and credit score, the fact that they exist should be extra incentive for you to make sure your credit is in as good a shape as possible.