Why Insurance Companies Use Your Credit Score
Insurance companies believe that a credit history is an excellent tool for analyzing whether or not you will file a claim. It is perceived to be more accurate than almost any other factor (including your previous driving history) at predicting whether or no you will be making an insurance claim in the future.
Using credit to make insurance decisions is legal in all the states and provinces in the United States and Canada. In fact the vast majority of the big U.S. auto insurers – 92 of the largest 100 companies – used credit information in 2001 to determine insurance rates (according to a Conning &Company survey.)
Of course, the kicker to all this is that you can have a great credit score and still end up paying higher premiums because of information found on your credit scores. This is because the way insurers use credit information is markedly different than the way lenders would use the same data.