TUESDAY, JUNE 28, 2011
Credit ratings basically give a history of how well you have been able to pay your bills. Many insurance companies especially those concerned with vehicles do use these ratings in determining the premium rates though this is not the only factor. In fact, many will also ask for other personal information. If we may take a car insurance company for example, they will use ones age, type of the car, driving history, and where one lives in addition to the credit ratings to determine insurance rates. However, the methods of determining the rates differ from one insurance company to another.
 Since there are no fixed laws governing the insurance companies on how to determine the rates across the board, different states have their own laws that govern their insurers. Due to this, many companies comply with their laws and weigh their customers using different scales to come up with individuals’ rates.
Although a number of insurance companies may be using this credit score to determine ones insurance rates, sometimes low credit scores do not necessarily lead to high premium rates. Other factors such as those mentioned above do play a major role in addition to insurance risk scores. The insurance risk scores are very similar to the credit risk scores that are used by lenders to determine whether or not to give one a loan since the two use ones credit information.
These insurance risk scores don’t focus more on what you pay or what you owe but mainly look at how regularly you pay. They are usually dependent on five characteristics of a person’s credit information that helps in weighing the person. They comprise of; types of credit established, payment history, length of time credit has been established, amount of credit owned and the new credit.
The insurance risk score is used by the insurance companies to identify reliable and consistent consumers who are less likely to claim policies and hence likely to cost the insurance less money. We can therefore agree that insurance company’s use a complex mathematical procedure in determining the premium rates of which credit rating is a factor of the equation.
By Matt Reynolds - Google+
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