Credit Score In Insurance Essay

Most automotive insurance companies use credit score in determining rates because they see it as a good indicator on the probability of a person to repay the loan in a timely manner. Meaning, someone with a higher credit score is a lower risk to the company because this person is more likely to repay the loan. Also, there is a strong correlation between a person’s credit score and their likelihood of submitting a claim. There has been evidence to support that those with lower credit scores cost insurance companies more compared to those with higher credit scores.
From a business standpoint, it seems reasonable to use a persons credit score in determining the rate for automotive users. A company wants to know that a person they are taking a financial risk on is reliable enough to pay back the loan they have given them. This seems like a small …show more content…
Thus, if you get into an accident you end up paying a higher premium, which is an incentive for people to drive carefully. With higher rates, as seen when using credit score, people do not have the incentive to drive more carefully because they feel they are already a significant amount of money—their rate does not take as big of a hit.
There are many pros and cons that can be said for the use of credit scores in the determination of insurance rates, however, additional information should be taken into consideration. Not only would the use of multiple criteria help the company it would also help the consumer. It is good to know if a person is capable and reliable enough to pay back a loan. But a company should also look at the probability of a person getting into a wreck in general. Thus, it might be in the best interest for insurance companies to use multiple criteria in determining the insurance rates given to their automotive