Why do Insurance Companies Use Insurance Score?

An insurance score is a number which is calculated with the help of a statistical model by using credit report information. It is used to predict the likelihood of filing claims and accidents. It is also known as credit insurance score but is different from credit score because credit score is used to measure the creditworthiness and credit delinquency of an individual whereas, insurance score is used to predict insurance losses. However, both are calculated by using the information available in a credit report, such as length of credit history, collections, outstanding debt, bankruptcies, the number of credit accounts in use, timeliness of debt payment and new applications for credit.

Many individuals do not realize what an insurance score is until they receive a notice that they are unqualified for the lowest pricing offered by their insurance providers. This notice is based on their insurance score. Therefore, you should review your credit report regularly and manage yourself financially in order to keep track of your insurance score. Unlike credit scoring, which determines your ability to pay off the loan by assessing your personal financial information, insurance score does not account for your income history.

Insurance companies believe that a perfect insurance score represents a client with a lower risk of filing a claim. Since the probability of filing a claim is associated with the credit, a good credit can be considered as a key element to a high score. Therefore, the impact of your good credit report can be so huge on your insurance premium that you have to pay less amount of premium if you have good credit but an average driving record as compared to those individuals who have excellent driving credit but a poor credit. However, you should know that insurance score is not the only factor that determines your insurance premium.

Although it is not possible to have a perfect insurance score but you can take reasonable steps to improve it by paying all your bills on time. But paying your bills on time is just one factor because the insurance score can be adversely affected by large credit card expenditures on a monthly basis, even if you pay off your credit card debt every month. Therefore, you should minimize the use of credit cards and limit the number of credit cards that you use for shopping as it is inconvenient to stop using your credit card entirely.

Every individual should evaluate whether the change in their financial spending and control of credit card use is worth it in order to achieve their goal to have a perfect insurance score. You should seek advice of Your Personal Financial Mentor because he can guide you how to manage your finances and maintain a good credit report in order to have a high insurance score. Moreover, he can also guide you how to plan your future financial goals so that you can make small savings and learn to forego the benefits offered by credit card companies, such as reward point and air travel.

Categories: Insurance

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September 20, 2013 Why do Insurance Companies Use Insurance Score?