Definition
High risk is a label placed on consumers that carry an increased possibility of incurring a loss.
Analysis
Creditors may label consumers with low credit scores as high risk. These consumers may pay higher rates of interest to compensate for perceived higher risks of default. Many of these consumers may be denied credit altogether, or may be limited to using companies that specialize in subprime lending.
Insurance companies also place a high risk label on certain consumers as well as individual properties in which claims have previously been filed. Low credit scores can also impact insurance rates, which could cause an insurance applicant to receive a higher rate even though they have no history of filing insurance claims. Filing an insurance claim can cause a property to be considered high risk for a period of 4 years.
