How Life Insurance Companies Use Credit Based Insurance Scores
A good credit rating can open a lot of doors. Not only can it make it easier for you to borrow money at a reasonable interest rate, but it can positively affect your ability to rent or buy a home, apply for a credit card or even get a job.
What surprises a lot of people is that some of the information associated with a credit report could affect whether you can get life insurance or what rates you pay.
Many life insurance companies use what’s called a credit-based insurance score to determine an applicant’s perceived risk. Credit bureaus like Experian and TransUnion perform credit checks on individuals and provide insurance companies with this information. The factors that affect credit-based insurance scores include:
- Payment history for loans and credit cards, including late payments
- Credit utilization rate
- Type, number and age of credit accounts
- Total debt
- Public records
- Number of new credit accounts
- Number of inquiries on the individual’s credit report
The higher the score, the higher the risk. A higher score doesn’t mean you will be automatically rejected. If you have high score, an insurer might require you to wait 12 to 24 months before getting a policy or offer you modified rates.
Other factors that may affect whether you get life insurance or what your rate will be are your medical, driving or prescription drug history, as well as your criminal record if you have one. However, the most important factors when underwriting life insurance are still age and health.
Remember that underwriting guidelines vary from company to company, so ask your broker to shop around for a company that will offer you the coverage you want at an economical rate.
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How Life Insurance Companies Use Credit Based Insurance Scores
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