Using Credit Scores To Determine Premium Rates Argued To Save The Day


Drivers are split as to whether they want to be judged based on their credit.

Using Credit Scores To Determine Premium Rates Argued To Save The DayAccording to experts in the auto insurance industry, the use of the credit scoring method to determine premium rates saves insurance companies and policyholders time, money, and effort.

University Professors who specialize in insurance and financial services suggest that a very good way to determine the premium rates to be paid is by credit scoring. As soon as the idea is presented, a number of critics who are against the credit scoring method argued that using such method will be detrimental to the poor and the disadvantaged, and that having a poor credit rating does not necessarily mean being a bad driver.

Reports show that the men behind the credit rating method argue that the other traditional means to determine premium prices such as driving history, age, geographical location, and gender are poor indicators.  Proponents of the credit rating method also argue that regardless of the criticisms, the method is quickly gaining popularity and acknowledgment as one of the most consistent and dependable indicators of a driver’s current and future losses. According to them, the connection between driving and credit scores is quite simple; it falls greatly on a person’s financial habits. A person who makes prompt debt payments in an attempt to do away with steep interest rates has a lesser tendency to file insurance claims, in an attempt to do away with higher premium rates.

In addition, the credit rating method makes the job of an insurance company easier. Studies have shown that when an insurance agency fails to determine the degree of an applicant’s eligibility for insurance, the agency tends to only have two options: to decline the application or to charge the applicant with high premium equivalent to those of a high risk driver. This practice is viewed as unfair by some consumers who insist that they are not high risk.

A survey conducted shows that majority of US insurance companies still experience difficulties in classifying and grouping certain drivers who want to purchase car insurance.  Refusing to insure drivers who cannot be determined or classified as high risk or low risk can be a simply answer, but doing so means losing business for insurance companies. The use of credit scores to group these drivers can earn profits from drivers whom the company may have rejected.

The reaction of consumers to the practice of determining premium rates using credit scores is split, some agree to the method while some disagreed and see the method as unfair. Reports say that at present, a great number of companies are already using the credit score system to group auto insurance applicants.