(Un)Score Insurance Through Credit Score: What To Do If Your Insurance Is Being Affected By Your Credit Score

Insurance companies use different sources of information about a person that supplements an application. For auto coverage, motor vehicle reports are ordered. For home coverage, physical inspections may be needed. Another tool that is widely used for underwriting is credit-based scoring.

While once controversial, this method has gained public acceptance. Its origin lies in the commercial use of credit histories.

What does it have to do with insurance?

Banks and other lenders have long used credit history in their lending process. However, it didn't take very long for the insurance sector to make a discovery. 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 the amount of debt, the number of credit cards held, the 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.

Mysterious development of scores

Insurers, after battles with regulators and consumers regarding the use of such information, routinely use credit-based scoring. It is hailed as an aid 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. An insurance professional is a good source to help you with questions on how your credit may be affecting your insurability.

Reach out to professionals at Williams Insurance if you have any questions. We’ve got over 80 years of experience, and we’re ready to help.