Credit Scoring and Insurance

Are You Credit Worthy

After you fill out an insurance application and it is sent to an insurer, the application is examined. The application is underwritten, meaning it is studied to see if you qualify for coverage. The application answers are to questions used to fit the qualifications set by each insurance company.

Typically an application is only the beginning. Insurance companies usually use other important sources of information. For auto coverage, motor vehicle reports are ordered. For home coverage, physical inspections may be conducted. An additional source of information that is widely used for underwriting is credit scoring. Credit scoring is an automated process where a consumerís credit worthiness is measured and rated according to a set of standards (such as amount of debt, number of credit cards held, pattern of payments, etc.). The rating or score is used to determine whether the individual qualifies for a loan. This credit evaluation is currently used by insurers as an underwriting tool.

The same information used by lenders (especially for mortgages) has become a popular underwriting tool. If your credit history, such as outstanding losses, bill payment history and type of credit results in a high score, chances are youíre a good bet to have your application for insurance approved. This is because, for some unexplained reason, persons who have high credit scores tend not to cause as many losses. Insurers have not provided details to explain why this strong relationship exists, they only rely on the information to assist in granting or denying coverage. However, if a poor credit score keeps you from getting insurance, youíre entitled to know. You can also get information on how to follow-up to see if your credit information is accurate. The Internet is full of sites that can give you a strategy for improving your credit worthiness and enhance your ability to get insurance.


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