WE ALL KNOW that folks with lousy credit have a harder time obtaining loans. And that seems reasonable, right? After all, who wants to lend money to someone with a poor record of paying it back on time?

But these days, having some black marks on your credit report may mean more than paying a higher interest rate on your credit card. A growing number of companies many of them having nothing to do with the business of offering credit are also scrutinizing the data on those reports to decide whether to do business with you, and how much to charge.

Some non lenders have been using credit information in this way for years: Many property insurers, for example, rely on them to help set rates for homeowners' insurance, a practice that is relatively noncontroversial. And many potential employers like to screen job applicants by taking a peek into their credit history.

But there's one industry in which the use of credit reports has been exploding in the last few years, and it's a business in which the pertinence of credit data seems tenuous at best: auto insurance.

Most of the 100 largest personal automobile insurers use credit information to underwrite new business, and many do so not just to decide whether to insure you, but also to help determine the rates charged, according to an industry study.

Does Bad Credit Make Bad Drivers?

Many insurance companies argue that a credit report can be a good indicator of the likelihood that a policyholder will file an auto-insurance claim. Some even say that in some cases what's on your credit report can be more important than what's on your driving record, according to the study.

"We know that there is a correlation between how someone manages their credit and insurance losses," says a spokesman for Allstate, the second-largest auto-insurance provider in the country. But what's not altogether clear is why. "We're not sure," admits Trevino. "But we know it's a fact.... And for us, that's what's most important."

There are some theories. Someone having financial problems could be under more stress, which could lead to more accidents. Or, someone who handles personal finances well is likely to be conscientious about other aspects of life, including driving and car maintenance.

But some consumer groups, such as the Consumer Federate of America, aren't buying it, and point out that you can get a statistical connection on a lot of different things (The color of hair? Color of eyes? Left-handedness?), but that doesn t mean it should be relevant.

The figure insurers use to evaluate you based on your credit history is called your "insurance score." This is similar to (although not exactly the same as) a credit score. Compared to a credit score, an insurance score generally gives a greater weighting to factors such as whether you've paid your bills on time, and for how long you've done so. At the same time, less weighting is given to the amount you owe. Many of the big insurance companies use proprietary scoring systems. You can ask the insurance provider for information about your insurance score.

Of course, just how much your insurance score matters depends on where you live, since insurance is regulated at the state level. California, for example, doesn't allow credit history to be used for insurance purposes and many other states are scrambling to follow suit. Nevertheless, most still states do. Some allow it to be used for the approval process, while others allow it to determine what rate class you fall into. Some allow both.

How heavily your insurance score will be weighed also depends on the insurance company you use. At one insurer poor insurance credit history could cost you 35% to 40% more in premiums, while at another it may not matter at all.

Reckless Homeowners?

And what about those other ways spotty credit could hurt you? True, it's somewhat easier to see a correlation between poor credit and property-insurance claims. For example, someone under financial duress might be tempted to claim the "loss" of a valuable possession. (Doing so is also, of course, fraud.)

In a more extreme scenario, a poor credit report might cost you a job. Many employers conduct credit checks on job applicants. The credit report is often simply used to verify information on your application, such as where you have lived and whom you worked for. But in some cases, it's used to get glimpse of the way you handle your finances.

Thanks to the Fair Credit Reporting Act, employers are restricted in their uses of credit checks. For starters, they need to get your permission before they pull your report. And if they choose not to hire you based on what's contained in the report, they have to tell you.

Considering all the uses to which your credit report can be put, it's all the more important that you follow the standard-issue financial planner's advice, and review that report once a year. Errors are more common than you think many of them serious enough that they could change the outcome of a job application or the amount you will pay for your car insurance.