How Can Insurance Companies Base Your Payment on Your Credit History?
- Although insurance for cars or homes might not seem related to your credit, most insurance companies would disagree. Through research, insurance companies have determined that there is a major correlation between low credit scores and high claim volume. If you are a bad credit risk, this means that you would likely be a bad insurance risk as well. To compensate for this additional risk, the insurance company has to charge more for your insurance premiums. Before you start shopping for insurance, you may want to get a copy of your credit report and make sure it is accurate.
- Even though insurance companies do look at your credit score, it is not the same one that you see when you get your credit report. The insurance industry uses a special type of credit report created specifically for them. It looks at most of the same factors in your regular credit report, but it puts more weight into certain areas. The insurance score will put more weight on issues like credit stability.
- While most insurance companies use a type of insurance credit score when looking at your credit report, each one could use a different model. Many of the larger insurance companies have their own credit score model. This helps them match the information in your credit report to the items that they value most. If you are a customer of the insurance company, you will most likely never see the credit score that they create for you.
- When an insurance company looks at your credit report, they will typically use it for two things. First, the insurance company will use it during the underwriting process. This involves deciding whether they will provide you with insurance at all. Once they determine that they will issue you a policy, they will also use the credit score to help come up with a rating for you. The rating helps determine the amount of your premium, combined with several other factors such as your driving history.