We know that our credit scores determine whether or not we get the newest car on the market. We know it also determines how much we ultimately pay for that car. But that’s not all our credit scores reveal. Just as the bank ran a credit check for the car loan, your insurance agent is going to do the same – and then she’s going to use that number to quote your premiums. There’s also a very good chance that your credit was pulled when you bought a new mobile phone and signed the two year contract.
So why would an insurance company be interested in your creditworthiness? Many insurance companies combine the information found in your credit report and then factors in other considerations to determine how much of a risk you are. The weaker your credit score, the more likely you are to file an insurance claim at some point. These scores, say experts, will provide insight into whether or not you could possibly torch your car or house with the goal of a handsome payout.
And if you apply at one of the bigger insurance chains and you don’t meet their criteria, those companies will likely approve you under their subprime companies. This happens all the time in the mortgage industry. The credit scores insurance companies use sometimes are called “insurance scores” or “credit-based insurance scores.” This is another reason why it’s so important to request a copy of your credit report before you begin your new car or house search. The primary reason is to ensure the best possible interest rate, but just as importantly, you want to secure the best insurance rates, too.
In recent years, employers began incorporating a standard credit check in their decision making process for hiring new employees. That may not be an option soon, though as lawmakers and now, the Consumer Financial Protection Bureau are looking into the legal and ethical considerations.
The credit models are developed by using a series of equations and a random sample of consumers reports in order to analyze the common denominators found in each one. Another series of algorithms come up with low, average or high scores. From there, lenders and insurance companies can better gauge the various predictors. These scoring systems allow creditors to gauge millions of applicants in a consistent manner. The characteristics vary, but with the right sample pools, they’re based on a fair and accurate design. What’s not allowed, according to the Equal Credit Opportunity Act, is identification factors based on a consumer’s sex, race, marital status or even their faith or religion.
Under the Fair Credit Reporting Act, consumers are entitled to one free credit report from all three of the major bureaus once a year. You can also purchase copies – usually for less than $10 each. Keep in mind though, in order to get the full picture of your credit well-being, you want to look at all three. You can request your reports at annualcreditreport.com.
Finally, if your application is declined, creditors are required by federal law to provide specific reasons for that denial. You only have sixty days, though. New changes in the law mean creditors must be specific. Before, they could simply say their minimum standards weren’t met; now, though, they must be willing to delve into those reasons and provide an explanation of what their minimum standards are and why you didn’t meet them.
- FTC Warns of Prepaid Card Scams – May 23, 2013