Determining The Rate For Automotive Users Essay

763 Words Dec 30th, 2015 4 Pages
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 request, especially considering the down turn of the economy in our recent past. Consumers got the “credit bug”, allowing them to feel as though they can purchase everything with credit upfront, since they do not have the current funds available, with plans to pay it off in the future. But as seen in the past, when people are unable to make the payments the company ends up eating the cost of the consumers bad decision. In order for a company to maintain and continue working they have to take measures to ensure their customers will pay them back. One of the best ways for solely determining the repayment of a loan is by looking at a…

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