One thing the builders of the insurance scoring models does not tell the consumer is that what helps build an individual’s credit score, may harm an insurance score. For instance, with credit scores (for mortgages) it is better for one to have a low credit card balance and/or low credit card limits. The financial institution wants to make certain their customer does not run the risk of getting into a position where they can quickly run up debt. However, a component of insurance scoring measures a person’s credit utilization. For example, two individuals have $5,000 credit card balances. Person 1 has a credit line of $100,000 and Person 2 has a credit line of $5,000. In this model, all else being equal, person 1 would have a higher insurance score due to lower utilization. In all likelihood, person 2 would have a better credit score. Again, assuming all else is equal.
The other dirty little secret is that long time relationships receive better insurance scores. Take an example where a person may have 2 credit cards. Assume they’ve had both for 2 years. If one of the cards begins charging an annual fee, most folks would drop that card in favor of a card with no fee. Therefore, opening a new line of credit and closing a long-term account. Bad as far as the insurance scoring models are concerned.
In both examples, these situations don’t look at income or race, but instead discriminate against financially savvy indivduals.
The theory that a good insurance credit score makes you a safer driver and have less claims, in my opinion is incorrect in viewing the client in our agency who have the claims and then reviewing their credit scores. The disparity in the various ways the individual companies calculate the scoring is even confusing. I belive credit scoring should be withdrawn.
One thing the builders of the insurance scoring models does not tell the consumer is that what helps build an individual’s credit score, may harm an insurance score. For instance, with credit scores (for mortgages) it is better for one to have a low credit card balance and/or low credit card limits. The financial institution wants to make certain their customer does not run the risk of getting into a position where they can quickly run up debt. However, a component of insurance scoring measures a person’s credit utilization. For example, two individuals have $5,000 credit card balances. Person 1 has a credit line of $100,000 and Person 2 has a credit line of $5,000. In this model, all else being equal, person 1 would have a higher insurance score due to lower utilization. In all likelihood, person 2 would have a better credit score. Again, assuming all else is equal.
The other dirty little secret is that long time relationships receive better insurance scores. Take an example where a person may have 2 credit cards. Assume they’ve had both for 2 years. If one of the cards begins charging an annual fee, most folks would drop that card in favor of a card with no fee. Therefore, opening a new line of credit and closing a long-term account. Bad as far as the insurance scoring models are concerned.
In both examples, these situations don’t look at income or race, but instead discriminate against financially savvy indivduals.
The theory that a good insurance credit score makes you a safer driver and have less claims, in my opinion is incorrect in viewing the client in our agency who have the claims and then reviewing their credit scores. The disparity in the various ways the individual companies calculate the scoring is even confusing. I belive credit scoring should be withdrawn.