What Does an Insurance Rate Score of 864 Mean?

An insurance company uses an insurance score to set a premium price for each client. The insurance company uses the credit score that it gets from a credit reporting agency to assess the client, but it includes other factors that are specific to insurance when it creates the insurance score. This score is sometimes known as an insurance rate score or a credit-based insurance score.

Scales

The three credit reporting agencies have a standard scale for credit scores, but there is no standard system for insurance scores. Each insurance company that establishes an insurance score for its clients creates its own scale and decides which factors to include in the insurance score. As with a credit score, a higher score is better and the client will pay a lower premium.

Significance

The credit score of the client is the main factor in the insurance score. According to Baylor University, a standard credit score includes the client's history of paying on time, the total amount of debt that the client has compared to the client's available credit and other assets and the client's length of credit history. According to the Federal Trade Commission, the insurance company only uses the insurance score to determine whether a client will make a claim, not whether the client will fail to pay the premium on time.

Warning

An insurance company considers a client more risky if the client submits a claim that the insurance company has to pay off. The insurance company will include the claims that it has paid out to the client when it calculates the client's insurance score. The insurance company also considers public records of events such as auto accidents.

Comparison

It is possible for a client to have a low insurance score and have a high credit score, but not vice versa. If a client is involved in several auto accidents and successfully receives reimbursement from the auto insurance company, the auto insurance company will lower the client's insurance score, but the client will still have a high credit score if the client has been paying off other bills on time.

Law

It is legal under federal law to use an insurance score to determine the rate for an insurance policy. Some states have additional usage regulations and may restrict the use of an insurance score if it appears to have a disparate impact on disadvantaged groups. Since the insurance score considers the credit score, the anti-discrimination laws for a credit score also apply to an insurance score.

References

• Baylor University: The Link Between Credit Scores and Insurance Rates
• Loyola Consumer Law Review: Disparate Impact, Federal/State Tension, and the Use of Credit Scores By Insurance Companies
• Federal Trade Commission: Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance
• Westfield Group: Understanding the Insurance Score