Credit Score and Insurance

Your Credit Score -- It's Not Just About Lending Any More

If you think your credit score only affects your ability to get a loan or a good interest rate, think again. Your score also tells cell phone companies, utilities, potential employers, and even insurance companies whether you are a high risk.

Your Credit Score and Insurance

Insurance companies? Et tu, Brutus. In recent news, it’s been noted that credit scores are causing minorities and low income families to be rejected—or charged a lot more—for everything related to credit, including insurance. A bad credit score can end up costing you more for you premiums, or even cost you your policy.

Why Insurance Companies Utilize Your Credit Score

Although insurance companies claim that credit score is an indicator of future filed claims, consumer protection groups are fighting this. They claim that low income or poor credit has no correlation to a person’s ability to drive. Insurance companies, on the other hand, retaliate with the opinion that a person who is careful with credit takes care of their vehicles and is more responsible in other areas of life.

Risk Management, Underwriting and Your Credit Score

The statistics come down largely to risk management, say insurers. Most of them now use credit scores designed especially for the insurance industry to determine coverage, rates, and even acceptance of a new customer. They suggest it helps determine an overall lifestyle choice that includes or excludes high risk behavior.

Objections to the Use of a Credit Score in the Insurance Application Process

People who are opposed to this practice claim it is adding insult to the injury of being poor or having a financial crisis, and that the way a person drives is more relevant. Poor credit doesn’t always mean someone is irresponsible, and denying them insurance coverage could be just one more way the poor are held down, they say.

Your Credit Score and Homeowner's Insurance

The same goes for homeowner’s insurance. While some states don’t allow denial of auto insurance or rate setting based on credit scores, denial of homeowner’s insurance is still possible. Whether credit scores are an accurate predictor of homeowners’ claims again remains to be seen. Many states are attempting to outlaw the use of credit scores as a basis for insurance rates and coverage.

Legislation and Your Credit Score: What the Future Holds

Until legislation wipes out this practice, people with poor credit may still be subject to refusals of coverage or at the very least, higher rates. For this reason, it pays to keep your report clean and your driving record clear. Check your credit report yearly for errors, and if you have spotty credit get it cleaned up. It will pay on your insurance premiums as well as your loans.