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What does credit score have to do with a person's ability to drive a car?  That's a legitimate question we sometimes hear, especially from people who are paying more for auto insurance, despite a good driving record, because of a low credit score.

The insurance industry has discovered that when they look at large groups of people, credit score is a very reliable predictor of the amount of losses they are likely to pay. So it's common to see people with good credit scores rewarded with low rates and the opposite for people with low scores. Insurance companies have long believed that mature, stable, responsible people are the best auto insurance risks and regard credit score as a proxy for those qualities.

Using credit score in car insurance rating has certainly been challenged for its fairness. When called upon to defend the practice, insurers typically respond that they can't look at any one individual and make accurate predictions about future claims, but they can look at groups with common characteristics and make very accurate predictions. That's why 16 year old drivers pay more than 50 year olds, even though there are some excellent 16 year old drivers and some lousy 50 year olds.

Regulators of the insurance industry have generally accepted the practice, so fair or not,  that's how the system works. Our best advice is to pay attention to your credit score and work to make it as high as possible. Doing so will pay off in many ways.

Blog Authored by: Ken Mogren, CPCU

Posted 11:02 AM  View Comments

Tags: insurance
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