How Your Insurance Score Affects Your Home & Auto Premium in Texas

Summary: Your insurance score is composed of many factors and carriers look at them to determine how much you pay in premiums. One of the closest tied factors to insurance scores is credit scores. While carriers can use an insurance score to determine premiums, among other things, the Texas Department of Insurance (TDI) regulates these actions to maintain fair practices and communication between carriers and consumers. If you want to improve your score you can improve your credit score to do so.Estimated Read Time: 6 mins

Table of Contents:

1. When insurers pull your insurance score is it a hard or soft credit inquiry?
2. Insurance Score Chart
3. What Affects Your Insurance Score?
4. How To Check Your Insurance Score
5. Does Credit Score Affect Car Insurance?
6. Insurance Companies That Do Not Use Credit Scores in Texas

Insurance scores, also known as credit-based insurance scores, are ratings based on a person’s credit information. Insurers use your insurance score along with other factors to decide how much you pay for coverage.

These scores help companies match premiums with how risky a customer might be. The goal is to be fair to everyone and not charge too much but carriers are businesses protecting themselves from risk as well.

Texas has laws preventing carriers from unfairly treating consumers based on their credit-based insurance score.

Usually, having a good credit score means paying less for insurance, but sometimes it might not change the cost or even make it higher. Factors vary depending on the metrics of each carrier.

Studies show that people with bad credit often file more claims, and these claims cost more for the insurance company.

Carriers might charge more to those with bad credit or refuse to issue a policy altogether.

When companies use your credit info in Texas, they have to give you a form explaining your rights. Here’s what you need to know:

• Carriers can use your credit information, however, this can’t be the only thing they look at to decide on your insurance or how much to charge you.
• Companies have to share their credit scoring models with TDI and if you wish, you can request a copy.
• If your credit info is wrong, carriers must tell you how to fix it.
• Some information can’t be used to hinder your credit and in certain situations, assistance must be provided. For example, if you are the victim of identity theft.
• If you need an exception, you can ask the insurance company in writing.
• The carrier has to look at only the credit info that wasn’t affected by the event, or they have to use a neutral credit score, and they don’t have to consider repeated events.
• If you believe you were mistreated by a carrier because of your credit information, you can file a complaint with TDI.

When insurers pull your insurance score is it a hard or soft credit inquiry?

Insurers, for the purpose of calculating an insurance score, always submit a soft inquiry, not a hard inquiry on a consumer’s credit score. A hard pull and a soft pull refer to two different types of credit inquiries that impact your credit report and score in distinct ways. A hard pull, or hard inquiry, occurs when a lender or financial institution reviews your credit report as part of a loan or credit application process, such as when you apply for a credit card or mortgage. This type of inquiry can temporarily lower your credit score and is visible to other lenders reviewing your credit history. On the other hand, a soft pull, or soft inquiry, happens when you or a company checks your credit report for non-lending purposes, like a pre-approved credit offer or a background check. Soft pulls do not affect your credit score and are not visible to potential lenders. Essentially, hard pulls reflect your creditworthiness for new credit, while soft pulls are more for informational purposes and personal checks.

Insurance Score Chart

Carriers compare the credit and loan accounts you have, the amount of money you owe, the age of your accounts, credit checks/inquiries, and much more when formulating your insurance score.

All of these different factors combined will provide carriers with the information they need to see where you stand. Here are the ranges to better understand where you stand:

Insurance Score	Rating
776 – 977	Good
626 – 775	Average
501 – 625	Below Average
200 – 500	Poor

What Affects Your Insurance Score?

If you want to improve or at least be aware of your insurance score, these are some factors you’ll want to remember:

• Your credit history, including if you have accounts that you have paid late on.
• The amount of accounts you have open and in good standing.
• Whether or not you have credit available.
• High or low use of available credit.
• The frequency you’ve recently applied for credit.
• Whether or not you have accounts sent to collections.

How To Check Your Insurance Score

You can ask insurance companies for your insurance score when you’re comparing quotes.

Because each company calculates scores differently, your score will likely vary between insurers.

Most insurers get their insurance scores from a company called LexisNexis, you can order your insurance score from LexisNexis here or here.

However, if your insurance core is used to calculate your premium, you can ask a carrier for your details.

Getting your credit score is simpler. Federal law allows you a free copy of your credit report from Equifax, Experian, and TransUnion each year.

You can request these reports from AnnualCreditReport.com.

This is an important resource, because your credit info impacts your insurance score, making it beneficial to review your report carefully for errors.

If you find any, dispute them with the credit bureau to correct them and potentially improve your score.

Improving Your Insurance Score

If you want to see your insurance score rise, then the best thing you can do is improve your credit score. Here are a few ways you can implement better financial practices to improve your standing:

• Focus on making on-time payments. Prioritize paying on time to generate positive money habits moving forward.
• If you owe money you’ll want to pay off your debts as soon as possible. Typically, it’s better to pay off accounts with higher interest rates first to keep your costs low.
• In many cases, it’s advantageous to avoid opening new lines of credit when trying to improve your score.

Keep in mind any actual, applicable financial advice should come from a trusted, licensed financial professional. These are simply ideas to help you get started.

You can also improve your insurance score by avoiding unnecessary claims. The best way to do this is to drive safely while on the road.

Credit Score Versus Insurance Score

While credit scores gauge the likelihood of an individual repaying their debts, insurance scores assess the riskiness of insuring that individual or the probability of them filing a costly homeowners insurance claim. Insurance companies utilize these scores to anticipate if forthcoming claims will surpass the premiums paid by homeowners, as claims entail financial outlays for insurers.

Additionally referred to as credit-based insurance scores, insurance scores derive from certain details in one’s credit history and are frequently computed by the same entity responsible for credit score calculations. It’s important to note that insurers typically integrate insurance scores into a broader underwriting evaluation, alongside factors like motor vehicle reports, claims history reports, home inspections, and other relevant information. Unlike credit risk scores, insurance scores are not used in isolation to determine pricing or to deny insurance coverage to consumers. Instead, they serve as one component in insurers’ comprehensive decision-making processes.

Does Credit/Insurance Score Affect Car Insurance?

Credit scores, like FICO scores, reflect your credit report data and help lenders predict your loan repayment likelihood. They influence loan qualifications and interest rates.

Contrarily, credit-based insurance scores, don’t consider personal data like job or income.

These scores focus on factors such as payment history and credit length to assess insurance risk.

Insurers use them to gauge future claim likelihood for car insurance, though they are also used to assess enrollees for other forms of coverage.

Having a good insurance score, a clean driving record, and no claims usually means lower rates.

Yet, auto carriers consider multiple factors, so even with a good insurance score, a poor driving history is likely going to increase your premium.

Does Credit/Insurance Score Affect Home Insurance?

Although the insurance score can impact the cost of your homeowners insurance, it’s not the sole determinant in pricing. Moreover, certain states have regulations prohibiting the utilization of credit data for insurance purposes. Various other factors contribute to determining a homeowner’s premium, such as the age and material of the roof, the property’s location, inspection report findings, and proximity to fire stations.

Premiums undergo adjustments annually during renewal to accommodate alterations in these rating factors. While some elements like construction and location remain constant, factors like insurance score and inflation may fluctuate.

Does Credit/Insurance Score Affect Landlord Insurance?

Your credit score can indeed affect your landlord insurance rates, albeit not in the same comprehensive manner as a standard credit check. Insurance companies typically conduct a less intrusive review of your financial background, focusing on specific aspects relevant to insurance.

What matters to insurers for landlord insurance is your insurance score, also known as your credit-based insurance score. This score is derived from a subset of factors from your credit history. Insurers incorporate this score into their rate calculations because studies indicate a correlation between certain credit characteristics and insurance claims.

The Connection Between Bad Credit and Higher Insurance Rates

Maintaining good financial health and a solid credit score suggests responsible management of mortgage payments and property upkeep. Regular maintenance and timely repairs contribute to a property’s resilience against adverse events like storms. Moreover, individuals with good credit tend to be more reliable in paying insurance premiums promptly. Insurers perceive these elements as interconnected, leading to lower rates for homeowners with favorable credit profiles and hence better insurance scores.

Conversely, homeowners with poor credit-based insurance scores may carry more outstanding debt and are perceived as higher risks for relying on insurance payouts in case of emergencies.

Insurance Companies That Do Not Use Credit Scores in Texas

In Texas, top-rated, major carriers are going to use credit scores when you receive a quote to determine the premium you’ll pay for coverage as it’s not a banned practice within the state. However, we do have some insurance carriers that do not use insurance/credit scores, this may be beneficial for some consumers with low insurance scores.

For those living in California, Hawaii, Massachusetts, and Michigan, insurance companies are prohibited from using credit scores. Whether or not this changes in the Lone Star State remains to be seen as many other states continue to question the practice and are considering similar bans. However, Texas is one of the most regulated states when it comes to the use of consumer credit scores among insurance carriers. Although carriers are permitted to use credit scores as a part of insurance scores, they must be regulated by the Texas Insurance Commissioner to help protect consumers, as mentioned above.

Having a less-than-favorable credit score can lead to higher premiums due to a lower insurance score, but you have plenty of options available to help you save:

• Many carriers offer usage-based telematics programs that can help you reduce your premium on car insurance.
• If you are looking to insure your home, discounts are available.

Regardless of any scores, when you purchase an insurance policy, the best way to ensure you don’t overpay for coverage is to simply shop and compare rates among top-rated carriers.

Freedom Insurance Group is proud to work with more than 25 top-rated carriers providing Texans with quality coverage at an affordable price, including insurance companies that don’t use credit score/insurance scores.

Every brand views your insurance score differently and as a result, you’ll receive different premiums. Get a home insurance quote or an auto insurance quote today to find the lowest rate near you.

Remember only hard inquiries affect your credit score. When you get a quote, you’re dealing with soft inquiries that won’t increase your insurance score or your credit score.

Sources: