Why Do Insurance Companies Do Credit Checks?

Insurance companies have been doing credit checks for commercial risks for some time and is a common practice in assessing whether or not to insure a business’ risk. However, recently insurance companies have been performing credit checks on personal risks such as someone buying auto insurance for their personal vehicle. The reason insurers do this is because they have found a correlation between an applicant’s credit score and an applicant’s propensity to rack up insurance claim. Simply put, the actuaries have found that those with poor credit scores get into the most accidents which costs the insurance company money. Therefore, in order to protect themselves, insurance companies will charge those with lower credit scores higher insurance premiums.