Why is a credit score a factor in things such as price for auto insurance or employment?
It all comes down to how reliable a person you are when it comes to your personal finances.
Because, like it or not, how we handle our money affects so many other aspects of our lives. If we are disciplined enough to pay bills on time then that indicates that we will be attentive to the details involved with a demanding job. It also shows that we are goal oriented, another plus at work.
As for auto insurance, insurance companies gauge how risky a person's driving habits may be by how reliably they tend to their finances. Usually, someone who is conservative enough to pay his mortgage on time is probably not going to engage in high-risk maneuvers on the road.
I agree with JanetF but hate that this becomes a factor without explanation. Many people handled their money just fine until something unexpected happens and causes their score to plummet. Then it becomes a snowball effect. I know it's not really an answer but think I feel where you're coming from.
A credit score indicates to a lender or other business entity how you handle your business--and life really. Any debt, loan, credit card, etc. is a promise - you basically give your word that you will repay that money. When it is not done according to the terms of the agreement - the score does down and new lenders, including insurance companies tend to view that person as a risk.
Prospective employers are looking for someone who is honest and someone who keeps their word or promise. A lower credit score can indicate to them that this person has not met their obligations (kept their word) and might be a bad risk for employment.
Even though we pay huge premiums, insurance companies still take a risk when they insure us so they have a lot to lose if they insure a person who does not honor their obligations. Unfortunately, they do not care about our unexpected emergencies - they have to consider their financial bottom line.
A number of things can be said by looking at your finances. It will determine on how well you will be able to handle this new financial obligation with the insurance company. I also agree with the fact that there are better things that can be used to gauge a personality. Unfortunately a number of companies have went ahead and used this method for a long time now and we will not be able to do much in changing that.
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