Are your insurance rates higher because your credit ratings

You have heard that insurance companies use credit ratings to determine whether to accept, and even if they accept you, determine what you will pay your premium.

That is almost right.

Insurance companies do not use FICO credit scores. Insurance companies often use based on credit "insurance scores," to determine if you have the right for auto or homeowner's insurance, and how much you pay.

Results, which use the insurance companies are a little different from the scores lenders use. However, they are similar in so far as they appear in many of the same information as credit ratings used for you for a mortgage or credit card.

Just like credit rating information from your credit reports is summarized in what is called insurance credit rating. Insurance companies use credit insurance score to draw up its own conclusions about you. Apart from these minor differences your credit rating will generally be a good indicator for your rating.

Each State has its own unique to the insurance scoring system. Some States allow insurance companies to use insurance scores to take a decision on the provision of insurance coverage or not. Other States prohibit it. However, most States allow some version of credit ratings to determine the insurance premium.

For many people enables insurance companies use credit information seems unfair.

For example, the bankrupt person with stellar driving record, you can see their insurance rates go up drastically simply because the bankruptcy appears on your credit reports and lowered their credit ratings and evaluations of credit insurance.

So what is the difference between the scores lenders use scores insurance companies?

Insurance companies do not depend on the results to predict whether it will make the insurance payments at the time (such as a lender makes). They are more interested in whether it will be profitable insurance customer.

And what makes a profitable insurance customer? You are profitable by paying your premiums and claims.

Can be a cost-effective insurance client from payment of your premiums and not supplying large dollar value claims. And this is exactly what they use credit insurance assessments to predict.

The lender credit assessments are designed to predict whether it will occur late payment incident. Credit insurance results are designed to predict whether it will be a profitable customer.

Clear as mud, right?

The bottom line is that the insurance companies say they have been able to prove, time and time again to be statistically strong relationship between the management of credit and your probability of making insurance claims.

In addition, the insurance companies claim to be able to demonstrate that the users who have lower credit insurance scores cost them more in claims from users who have superior credit insurance.

What they are not able to prove to be the reason why there is a link between credit ratings and increased incidences of claims. This is where much of the controversy stemmed from.

However, insurance companies have the right to use credit information to evaluate your application for insurance. It is called the permissible purpose and it is clearly spelled out in section 604 of the Fair Credit Reporting Act. This is the law.

Stephen Snyder is the founder of after bankruptcy Foundation a non-profit organization that provides free information about the recovery of the insolvency. He also is an expert on insurance credit scores [http://www.lifeafterbankruptcy.com/resources/insurance-credit-scores], which insurance companies use to determine if you have the right for auto or homeowner's insurance, and how much you pay.

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.