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The Credit to Insurance Connection
A Dirty Little Secret

Most consumers have no idea that your credit history and credit score can affect the premiums they pay for auto, homeowners, and mortgage insurance. How can this be? Aren't these two areas completely unrelated? The answer is yes, they are.

However, the Fair Credit Reporting Act allows credit reports to be used for loans, insurance, and employment. It's controversial but perfectly legal for insurance companies to raise your rates when they discover negative information on your credit report. They don't like to admit this and try to keep it under the radar but it's a common practice.

Through statistical analysis of claims, auto insurers have found that drivers with a lower credit score are more likely to cost them money. They don't know why this is the case, but the data shows that it is. They claim that credit based auto insurance pricing is the biggest advancement to policy underwriting in the last 30 years. Some theories say that it relates to stress, risk taking behavior and personal responsiblity. The connection could possibly be that people with poor financial histories engage in more risky behavior and are not as responsible. The controversial connection of credit scores to insurance prices arises from the fact that none of these theories can be proven. How do we know they don't cause unintended price discrimination? Does a low income individual or minority with little or no credit history automatically make for an irresponsible risk taking person?

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Articles

The Credit to Insurance ConnectionA Dirty Little Secret

The Credit to Insurance Connection
A Dirty Little Secret