Credit grantors have known for years that some of the information on your credit record is very predictive of your ability to pay back a loan or credit card balance in the future. To assure an objective look at this information they created mathematical models to weight and score these factors. These scores are used to underwrite loans and determine the proper rates of interest for each customer.
The ability to review credit information and score customers has allowed these credit grantors to provide credit and competitive interest rates to customers throughout the United States.
Recently, the Insurance Industry looked at creating mathematical models based on credit information that would predict Automobile and Property losses. Although the factors and weights used in the insurance modeling were somewhat different than the factors used by true credit grantors, the results were very much the same. Insurance scores based on credit information were extremely predictive of future insurance loss.
As with Credit Scoring in the lending industry, the new Insurance Scores have allowed Insurance Companies to give better rates to customers who are least likely to have losses.
