Banks and other lenders have long used credit history in their lending process. A discovery then occurred which prompted a new use. For some reason, certain elements of a person’s credit history are predictive of whether that person is likely to suffer insurance claims. A credit-based score is developed from information such as amount of debt, number of credit cards held, pattern of payments, defaults, etc. Credit-based scores are used to help decide the acceptability of applicants. They may also help a company choose to modify the premium charged to existing clients.
Insurers, after battles with regulators and consumers regarding the use of such information, routinely use credit-based scoring. It is hailed as an aide to improve their pricing and profitability. However, there is a reluctance to provide details on how scores are developed. Companies have claimed that the information is considered confidential. Insurers fear that revealing details on credit-based scores would result in losing valuable information to competitors. While a handful of states have banned the use of credit-based scoring, most others have approved its use (along with guidelines for its use).
If you have been affected by a credit-based score, you’re entitled to know. You can also get information on how to be sure that your credit history is accurate. One of our insurance professionals is a good source to help you with questions on how your credit may be affecting your insurability.