Small Business Reading Room


Monday, February 14, 2005

Credit Scoring for Insurance Rates

I have been going back and forth with the local newspaper, the News Journal, about the merits of credit scoring as a method of predicting insurance claims.

More information is now available courtesy of the Texas Legislature. They mandated a study by the Texas Insurance Commissioner to look into this and they found that credit scores are highly predictive of likelihood to file a claim.

This says nothing about the size of the claim that might be filed. But it seems to legitimize the use of credit scores in setting rates.

California, Hawaii and Maryland ban the use of credit scores for at least some types of insurance. This also points out the importance of maintaining a good credit score and credit report. Checking your credit report is something we should all do at least once per year.

I just checked all three of mine at myfico.com and found that the mortgage on my last house is listed twice in one of the bureaus.
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