Three Steps to Improving Your Insurance Score

Most insurance companies are now using insurance scores as a factor in determining rates for auto and sometimes home insurance. The formulas, which vary by company, use information from your credit history to establish an insurance score for you. Based on this score, you are assigned to a tier or rating group. Of course, many other factors affect your auto insurance rates, including your driving history, vehicles, and coverages selected.
Insurance scores are different than credit scores. Insurance scores use only those factors from your credit history that show a direct correlation to future claim potential. Insurance scores generally do not consider income, assets, or total debt.
Because there are fewer factors determining your insurance score, it can change much faster than your credit score does. While this can be frustrating, it gives you the opportunity to improve your insurance score over a relatively short time.

Step 1: Check your credit reports

What you can do:
Get your free credit file disclosures at AnnualCreditReport.com. You can get one free report each year from each of the three major credit bureaus. You can get them all at one time, or spread the three over a year as a sort of do-it-yourself credit monitoring program.
Note: You do not need your actual "credit score." Your credit score is not free, and only affects you if you are applying for credit.

Step 2: Clear up any errors

What you can do:
Check your reports for any errors, such as incorrect addresses, duplicate entries, incorrect account information, etc. If you find errors, contact the credit bureau issuing the report. They will investigate and advise you of their actions to correct the error. If the credit bureau does not resolve the error, you may need to contact the company or organization responsible for reporting the information.

Note: Certain factors affect your insurance score until they drop off your credit report, which takes seven to ten years depending on the type of record. These include

- bankruptcies
- liens
- garnishments
- judgments
- suits
- collection agency filings


Step 3: Take steps to improve your insurance score
Your insurance score reflects your history of managing credit, with more emphasis on recent information. Because certain key items drop off in as little as two years, you can often make a noticeable improvement in your insurance score.

What you can do:

Pay accounts on time. Any account with even a single late payment counts against you, while each account paid as agreed counts in your favor.

Apply for new credit only when needed. Both the number of credit accounts you have and the number of credit inquiries are key factors in determining your credit score. (Insurance company inquiries and inquiries by mass marketers do not count against you).

Only utilize the credit you really need. Insurance companies look at the total balance you owe as a percent of your total credit limit (does not include mortgages). They also consider the number of accounts that are close to being "maxed out," with a balance of more than 75% of the credit limit.

Keep your oldest accounts active. While it is tempting to close all inactive accounts, you should keep your older accounts open. Some formulas use the oldest account age, while others use the average length of time all accounts have been open as factors in your score.

Close revolving retail accounts, such as store credit cards, unless you use them frequently or have had them for a long time. These accounts count against you even when there is no outstanding balance. Installment accounts such as appliance financing or boat loans are considered closed when paid in full.