Final answer:
A score derived from an individual's credit history that insurers use for underwriting and rating purposes is known as a credit score. It indicates the creditworthiness based on past financial transactions and is used by lenders to determine loan terms and interest rates. An individual's credit score is dynamic and can improve over time with good financial practices.
Step-by-step explanation:
The score derived from an individual's credit history and other factors used by many auto and homeowners insurers for underwriting and rating purposes is called a credit score. A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A higher credit score implies more creditworthiness and a lower risk for the lender, which can influence the terms and interest rates for loans.
Lenders assess this score by examining a borrower's previous borrowing history and payment reliability, along with savings and other investments. The credit rating provided by agencies like Standard and Poor's and Moody's serves as an important tool for banks to predict the risks associated with lending money.
It is crucial to note that underwriting decisions made using credit scores are based on objective data; factors like race, gender, and religion do not come into play, and individuals who make financial mistakes are not permanently penalized, as their credit score can improve over time with better financial behavior.