To make fair and objective decisions and pricing of insurance more accurate, insurance companies need to have as much information as possible. Your credit history provides a consistent and effective tool to evaluate risk. People who use credit wisely are generally responsible in other areas of their lives. Research has shown that individuals with better credit-based insurance scores have fewer losses and less expensive claims. The use of credit-based insurance scores actually allows insurance companies to offer lower rates by providing discounts to customers who have proven to manage their credit well. For more information on how credit-based insurance scoring benefits consumers, the Property Casualty Insurers Association of America has a brochure available on their website at

It is important to understand how insurers use credit information and the significant difference between credit scores used by lenders and the credit-based insurance scores used by many insurers. Although both are generated from information found on credit reports, the information is used differently.

Independent studies have proven that there is a strong connection between credit history and the likelihood of an individual filing a claim.

Insurers use credit information in developing credit-based insurance scores to predict the likelihood of future insurance losses. Insurers develop these credit-based insurance scores using a numeric assessment of a person’s credit risk, based on such factors as number of collections, bankruptcies, length of credit history, payment patterns, types of credit in use and the number of new applications for credit.

Lenders, on the other hand, use credit scores to determine the availability, amount and price of credit products offered to consumers. Lenders use credit scores to determine the likelihood of being repaid. In other words, the most significant difference between insurers and lending institutions is that lenders consider the amount of income and insurers do not. Insurers measure “how” available credit is being managed, while lenders are primarily concerned with “how much” credit to grant.

For more general information on Credit Reports, including the following topics that may also apply to credit-based insurance scores, go to the SmartEdgeByGMAC.com section on vehicle financing using this link

• How and why credit reporting agencies maintain credit reports
• How to obtain your personal credit report
• What a credit score is and how it is determined
• How to avoid or correct credit problems
• What are the consumer protection laws related to credit