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Many people tend to confuse their insurance score with their credit score when analyzing their insurance.  Although these two terms are similar, there are distinct differences between one another.  Your credit score is usually comprised of:

1.  Payment History:  How timely you make your payments on your outstanding debt.

2.  Credit Utilization:  How much debt you have on each account as well as overall level of debt. 

3.  Length of Credit History:  How long you have had each of your accounts and the account’s most recent activity.

4.  New Credit:  How many credit inquires and new credit lines you have opened or applied for.

5.  Credit Mix:  How many types of credit you have such as a credit card, mortgage, auto loan, revolving credit, etc.

Your insurance score usually consists of:

1.  Accident/Claim history:  How many prior incidents and claims you have had and their severity.

2.  Credit:  How likely you are to repay your debt (not necessarily using all 5 factors above).

As you can see your credit only makes up a portion of what insurance underwriters use to determine your insurance score.  Insurance companies use your insurance score to determine how likely you are as a client to experience an insurance loss.  Insurance companies large and small have realized that there is a correlation for years between credit and the likelihood of a future claim.  Thus, most insurance carriers are now adopting an insurance scoring model if they haven’t already done so.  A few key things to keep in mind in regards to your credit score vs. your insurance score are:

·  Just because you have a really good credit score doesn’t mean that you will have an excellent insurance score.  Remember, credit score is just a factor of your insurance score.

·  Insurance Scoring and Credit Scoring use different scales.  For example:  the highest credit score attainable is around 850 while the highest insurance score may be 1000 (or some carriers use letters A-F like in school).

·  Most insurance claims are tracked by Clue (Comprehensive Loss Underwriting Exchange):  CLUE is kind of like CARFAX for houses.  Most insurance companies report claims to CLUE and then can be used by a home seller or an insurance company to review claims made on a house within about the last 5 years. 

Typically most states will not allow insurance companies to use credit as a sole factor to not provide coverage or cancel a policy.  However, just about all states allow insurance companies the use credit in some form or another.  Credit doesn’t always determine how risky you are as a client.  That’s where the insurance score comes into play - by factoring in prior accidents and claims in order to better match the annual premium to the risk. 

A common question we are asked is, if my insurance score is low what can I do to help improve it?  That is a great question and the answer can be simple.  Really it’s focusing on the 5 factors above and periodically checking your credit report for errors.  You may also not want to file small or unnecessary claims.  However, be careful not reporting claims – some policies require you notify the company if there is a claim or potential claim.  If you personally have any questions regarding your insurance score please don’t hesitate to give us a call at Davis & Massey Insurance.  Feel free to stop by our office located at 1117 48th Avenue North, Suite 124, Myrtle Beach, SC 29577.

www.davismasseyins.com/ (843) 839-9229

 

 

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