Credit Scores

• An individual's credit score is a measurement of the risk a lender undertakes in lending to him. This score is an estimation of the likelihood that, were the lender to loan the individual money, it would be paid back on time and in full. While primarily used by lenders to assess an individual's creditworthiness, credit scores may also be used by other businesses, such as insurance companies, to help estimate an individual's overall trustworthiness.
  
  

Auto Insurance

• After purchasing an auto insurance policy, an individual is generally required to pay a monthly fee known as a premium. The size of this premium varies greatly depending on the insurance company's estimate of the likelihood that the individual will trigger a claim against the policy. Drivers more likely to get into an accident are charged higher premiums. According to Bankrate.com, over 92 percent of insurance companies use an individual's credit score to determine the size of his premiums.
  
  

Homeowner's Insurance

• Homeowner's insurance covers damage to a person's residence, as well as injuries sustained by guests to the residence. Insurance companies use credit scores to determine homeowner's insurance premiums. However, the variables a company uses to determine the likelihood that a person will get in an auto accident are significantly different than those used to determine the likelihood that he will incur a claim against his homeowner's insurance.
  
  

Considerations

• The precise formula that a company uses to price homeowner's insurance and auto insurance can differ greatly. While one company may tie the price of the homeowner's insurance to the price of the auto insurance, it is more likely that a company will use separate models to calculate the cost of the homeowner's insurance and the auto insurance. However, these models may use some of the same variables to calculate the cost.