Insurance companies using credit scores to determine whether a customer “fits the bill” is just another byproduct of the Great Recession – but it is one consumers have to prepare for.
So let’s take a look at what insurers look for in their credit score calculations – and what consumers can do to win the credit score battle.
Q. What types of insurance companies take a closer look at credit scores?
A. Mostly homeowners and auto insurers – two of the more retail-driven corners of the insurance industry. Credit has been tight during the Great Recession, and insurance companies, much like banks and lenders, are being increasingly prudent about those with whom they do business. Naturally, home and auto purchasers would rank high on the list of customers needing ‘scrutiny” in the form of rigorous insurance company credit checks.
Q. Is it all about my credit-worthiness? Or is there more involved?
A. Insurers are a different breed of cat in the financial industry. They spend hundreds of millions of dollars “predicting” consumer behavior (i.e. whether you’ll ever file a claim or not, and how much the claims you do file will cost the insurance company). These are both highly-important factors to insurance companies, and a good, thorough credit report can help them determine what type of “claim risk” you’ll turn out to be. So it’s not as much your past financial behavior that counts for insurers; it’s what you might do down the road.
Q. So there isn’t an emphasis on past financial behavior?
A. Not so fast. While data on the probability of future claims is a big deal with insurers, it doesn’t mean they won’t take into account your financial past. Specifically, insurers will want to know if . . .