Good to see a legislative body that did not swallow ‘hook, line & sinker’ the Insurance industry’s overcooked explanation on the ‘virtues’ of using credit scoring in underwriting of personal lines insurance.
The industry will cite studies to validate the correlation between credit scores and claims experience. The fact of the matter is many of these studies have been commisioned or paid for by the industry. If there is a correlation it is as s relevant as studying claims and finding that people born on a Sunday are involved in more accidents (i.e. purely coincidental).
The fact of the matter is the industry likes to use credit scores in underwriting because it is very cost effective for them and they can’t be accused of overt/intentional discrimination.
The truth is that persons at the lower end of the economic scale have less stability in employment,less income and less of a financial safety net. An unforseen medical bills or fewer hours worked or temporary layoff can send these people into economic tailspin which very likely would adversely affect their FICO score.
Credit providers certainly should look at a person’s credit history and ability to pay their bills on time but a auto or homeowner insurer is not extending credit when they agreee to write a policy. A person may be laid off from work but it does not affect their ability to safely drive an automobile.
The use of credit scoring in underwriting personal lines insurance is a clever discriminatroy practice that leaves no obvious ‘fingerprints’. The carriers nontheless each purchase from Fair Isaacs a tailor made program or or develop their own formula for how they ‘massage’ the raw data.
Insurers should give up the credit scoring mantra and base their auto underwriting, for example, on relevant factors such as make/type/age of vehicle, driving experience, miles driven, use of auto (pleasure, commuting) and prior claim/loss activity. Don’t use a person’s FICO Score to decide who will be issued a policy or how much they will pay for that policy.
I totally agree with EVERYTHING Rolf Neuschaefer just posted. I was a Personal Lines Underwriter for 23 years before I recently retired. Credit scoring is done automatically via the computer systems between the ins. Company and the reporting agencies. All the Underwriter has to do is make a “black or white” decision based strictly on a total point score of credit. IMO – this has NOTHING to do with an insured’s moral values of putting in claims under an insurance policy. There are too many things that can lower a credit score that are beyond the control of the insured. I am totally against credit scoring and always have been! Most of the time, the computer in the Ins. Co. will automatically decline an application BEFORE it even reaches an Underwriter if the credit score is lower than what the Company finds “acceptable”. More States should do what Massachusetts has done – Ban ALL Credit Scoring!!!!!
I read how easy it is for those to slam the use of credit scoring, but how do you logically discount the factual actuarially proven correlation between a higher risk credit profile verses a lower risk credit profile?
OK, you argue that this can’t have anything to do with insurance; it’s a person’s bill paying habits, that’s all. Any correlation is just coincidental.
Please use this same argument on other rating factors such as age. Why is it that says my 16-year-old son should pay higher rates? He’s never had an accident. He’s very responsible. He’s learned driving well and shows responsible patterns. Why should someone 34 years old get lower rates? For that matter, why should someone over the age of 72 pay more as well? So what if their response time is diminished, hearing going bad, sight not what it used to be, right? They still haven’t had an accident… yet!
How about me, say I have a lot of speeding tickets, but never an accident or claim. Why should I pay higher rates?
Ok, I’ve now had my one life-time accident, I didn’t see that fire hydrant when backing up in an unfamiliar parking lot, this’ll never happen again, why should I pay more for this over the next three years than say my twin brother who hasn’t had an accident?
Why should someone living in the country (who doesn’t fight the bumper-to-bumper 70 mph rush hour traffic, Car Jackings, and wild mixture of weirdoes on the road) be charge less? So what if the majority of miles put on their car is in very light traffic on roads with fewer traffic hazards?
People, these are actuary factual risk indicators. These are the variances in insurance pricing that reward lower risk behavior and environment, and penalize higher risk behavior and environment. This used to be considered fair. You have a choice in your behavior and where you live. You can choose to operate your automobile in a defensive safe manner, or you can disregard a level of safety. For those who sacrifice convenience and desire for safety, they get a reward. For those who disregard a higher level of safety, they pay a surcharge. That’s choice and reward.
Maybe you question what fairness really is. Maybe it feels wrong to surcharge someone with high-risk indicators. Why not socialize insurance pricing? Why not all pay the same amount. You know, those now paying $700 per year give up your credits to those paying $1,400 per year and all of us pay $1,050 per year. Guess what, next year that price will be $1,250, then $1,300 and so forth, since now we’ve penalized safer drivers, there’s no longer any incentive. We’ve removed the disincentive for high-risk drivers, so why should they care if they’re in an accident? It won’t cost THEM any more? This is similar to insurance regulation in some states Eastern Board States and Hawaii. They â€Ŕsocialized†auto rates for many years. Now, with auto rates the highest in the nation, they are looking to deregulate and introduce more diverse rating practices. Folks, THIS is insurance. THIS is equitably spreading the risk to maintain a set of proper incentives. THIS is a more equitable, efficient and competitive rating mechanism healthiest for our society. This is fairness. This rewards those who save society by not having claims. This penalizes those cost society in claims. Would you like your version of fairness in criminal penalties? Would you want all crimes to have the same punishment regardless of its nature? How about all citizens serve some time in jail so that those serving life can be commuted to a lower time served? Now that sounds like your version of fair!
Don’t take my rating discounts away from me and my low-risk behavior friends and clients. You can keep your high-risk accepting rules if you want, but I think you should pay for them, not have me help pay for them.
I am a licensed P&C agent & have been in the business for over 10 yrs. I wish all states would follow Mass. in banning credit scoring. I think it is a descriminating practice that should not be tolerated by the American people. It basically catagorizes all people who have had problems with their credit for whatever reason, as a high risk insured who will try to pay their bills with their insurance company’s help. Isn’t that a bit far fetched to think that all of us are scamming on how to defraud the insurance company. I have ran excellant insurance risks, ie. proffessional business men and woman with no losses and good driving records who came back with unacceptable credit scores. How do you explain to them that they are a risk in the insurance company’s eyes.
I am both amazed and appalled at the willingness of people to condemn something based upon little or no information. Mr. Wood got it right. Statistical correlations have nothing to do with causation. Numerous studies using long-accepted methodologies have provided solid, supportable data showing a strong correlation between claim propensity and insurance scores. These studies stand on their own merits and it is specious to question their validity based solely on who paid for them. Properly applied, insurance scores help as many or more people than they hurt. (This is due to the fact that high risks consume a disproportionate share of the costs.) Several producers have noted that they can leesen the impact of DUI for an individual (say a parent coming home from a wedding with no history of DUI) by applying the insurance score to show a lower risk of recurrence. It is human nature for high risks to want to be subsidized by lower risks because it inurs solely to their benefit. However, auto insurance is an area where people can be given a financial incentive to change their conduct. Insurance scores have proven to be an impartial means of effectivley identifying the higher risks. No one knows why insurancing scoring has such a strong correlation to claim experience, but that is true of other factors as well. Is it sex discrimination not to charge 16 year-old girls the same rate as boys? Why is it that girls don’t have the same loss experience as the boys of the same age. No one knows for sure, but we do know it from their experience and if it is good enough there, it is good enough for insurance scoring which has the same or an even stronger correlation than age and sex.
Finally, the NCOIL model and most state regs and laws exclude the use of medical bills or divorce and other external events, so that those whose scores are low due to an event outside their control will not be penalized.
I do think the companies have done an exceptionally poor job of educating their insureds about how insurance scoring works and what its actual impact upon consumers is overall. Thus, adding more fuel to the fires of critics who have little or no real information upon which to form their opinions. While insurance scoring’s strength of correlation is deemed high, it is only in relation the the correlation of other common factors. If we could truly identify and charge high risks according to their risk exposure, it would no longer be insurance (no spreading of risk), but insurance scoring is long,long way from that possibility.
The insurance industry claims there is actuarial support for use of credit scores to predict risk. Why then have the loss ratios of many companies gotten worse instead of better since credit scoring was introduced?
To educate people who do NOT work in the Ins. industry as an Underwriter, the credit scoring is based on more than how you pay your bills – but this does carry a large percentage of the overall “score”. They also take into account how long you have resided at your present residence(if you have just moved, your score is lowered!), if you are single or married(single is a lower rating), how many inquiries have been made into your credit record(mortgage shopping would lower it). True, a “divorce” does not enter into the scoring -BUT-indirectly is does as you are now considered”single”! The fact you have less money to live on means you also might get behiend in some of your bills, or your ex-husband stops paying child support or alimony payments drastically reducing your income! Credit scoring does NOT have anything to do with your driving record which is a better indicator of how “responsible” you are behiend the wheel of a car. A CLUE report is a better indicator of your claims and driving history as it will reflect every single claim you have presented to an ins. company for the past 5 years. As I said it before – credit scoring is wrong! IMO – it is “red lining” by the insurance companies. Being “rich” does NOT make a person less claim conscious.
Thank you for some sanity Mr. Wood and Mr. Kirven! If you look at the arguments of the previous postings they don’t make any sense. They say the carriers use this to underwrite because it’s cheaper. If it doesn’t work to properly predict losses then they would use it would they! So, if you assume it works then the argument is that it isn’t fair and redlines. I can’t think of a single company that will turn down a good risk that fits their underwriting criteria if the applicant can pay the bills. FICO scores are all over the map and to my knowledge have very little to do with geographic or economic areas. The averages vary widely by state. Economic stability could most certainly affect a credit score because it can affect someone’s ability to pay their bills (including their insurance payment). Income level, age, and most other demographics, however, do not affect someone’s FICO. As Mr. Wood pointed out, we discriminate against all those drivers out there who get speeding tickets but never get into accidents and have claims. The reason is that there is a proven correlation between speeding tickets and FUTURE claims. The same correlation exists between a low insurance score and FUTURE claims. Yes, not everyone with a low score is a bad risk but the evidence is overwhelming and the correlation is so high that it is a tool that should be allowed to be used by the industry. Please show me the independent study that shows why all the factors that are traditionally used to underwrite are valid. There actually is an independent study showing the correlation between credit score and future claims that was conducted in March of 2003. Here is a link to that page http://www.mccombs.utexas.edu/news/pressreleases/insurance_study03.asp
Face the facts, it works, it’s fair, and it benefits most insureds.
Your credit score impacts your rates
Insurance companies get your credit score converted into an “insurance score” and judge what you should pay in premiums  the lower your score, the more you pay.
Insurance companies have used credit scores for quite some time to judge risk. In New Jersey, this has been primarily done in the homeowner’s insurance area. But to attract one new auto insurer to NJ (Mercury), the NJ Department of Banking Insurance is allowing them to use credit scoring to set premiums. It’s logical to assume that other auto insurance providers will soon be permitted to use credit scoring also.
This is an important issue and we will devote much of this month’s “Insurance Matters” giving you helpful insights on credit scoring and how you can improve or maintain yours.
Is credit scoring fair? Accurate?
Insurance companies say it is and point to a number of studies that show a correlation of lower scores to higher claims.
Consumer groups say this is not fair because it tends to penalize minority groups and those with low incomes.
Credit scores can vary as much as 50 points depending upon which credit bureau provides the report. Some reports contain errors.
If a lender turns you down, they are required by law to notify you in writing and give you information on the credit bureau that provided the report.
Insurance companies are not required to tell you your “insurance score” or even how they determined that score. Under the Fair Credit Reporting Act they are required to notify for of “any adverse action”  cancellation, premium increase, etc.  but not when quoting initial rates.
If credit scoring is not allowed, is it fair for those with good scores to subsidize those with poorer scores?
These are all good points and, depending upon a person’s perspective, opinions vary.
Insurance companies need to make a profit. If credit scoring provides an accurate picture of future risk, why shouldn’t it be used?
If you are struggling with your bills are you really more likely to file an insurance claim? Suppose you lose your job and fall behind on some of your payments, lowering your credit score, will your insurance rates go up right away? Conversely, if you improve your credit score, when will your rates go down?
How often do insurance companies evaluate your credit score?
These are all valid questions. The answers vary by person, by company, and by state. Credit scoring has been and will be around for quite some time. It may or not be fair. Will it be used accurately, objectively, and uniformly? No one really has those answers. But, to make the best of the current situation, read on to learn more about your credit score and the “do’s and don’ts” for improving your score.
What is my FICO score?
It’s a number from 300-850  the higher the number the better.
This number is generated by an almost magical formula that used to be totally secret. It was developed by the Fair Isaac Company (hence the name FICO score).
The formula assigns values to past credit history and current activity. Here are the important percentages that comprise your score:
Outstanding debt and number of accounts …………………….30%
Length of credit history……………………………………………15%
Type and number of accounts……………………………………10%
New accounts and recent requests for credit …………………10%
How you fare in each category determines your current credit score. Your FICO score changes. Your score next week may be different than today. It goes up and down depending upon how much you pay, when you pay, and what new credit you request. It is a current snapshot of your credit performance.
Do’s & Don’ts for best credit scores
Do get your credit report and check it for errors. These reports are available from the three main credits reporting agencies and from Fair Isaac Company. They cost from $12.95  $34.95, but are worth the expense.
Note: There are other web sites that offer free credit reports. However, some of them may use methods that result as a “hard inquiry” on your credit history, which lowers your score.
Don’t close out old accounts. Keeping them with no or a little balance helps your credit score in the length of credit history and amount of unused credit available. If you close out accounts, close the most recent ones.
Do get your credit cards balances to below 30% of credit line. This increases the amount of unused credit available and is good for your score.
Don’t consolidate your credit card debts using a new credit card. This adds one more creditor and does not reduce the amount of debt.
Do pay the bills when they come in. Don’t wait until just before they are due. Paying early can help. Paying late hurts.
Don’t open a new store account unless you must. Resist the temptation. Each new account is another credit inquiry that counts against you. Older credit helps, newer credit hurts.
(c)www.insurancematters.net
“Creditors have better memories than debtors”  Benjamin Franklin
Hooray for Massachesetts citizens. This is a great day for them, a stand against abuse by the insurance industry.
Good to see a legislative body that did not swallow ‘hook, line & sinker’ the Insurance industry’s overcooked explanation on the ‘virtues’ of using credit scoring in underwriting of personal lines insurance.
The industry will cite studies to validate the correlation between credit scores and claims experience. The fact of the matter is many of these studies have been commisioned or paid for by the industry. If there is a correlation it is as s relevant as studying claims and finding that people born on a Sunday are involved in more accidents (i.e. purely coincidental).
The fact of the matter is the industry likes to use credit scores in underwriting because it is very cost effective for them and they can’t be accused of overt/intentional discrimination.
The truth is that persons at the lower end of the economic scale have less stability in employment,less income and less of a financial safety net. An unforseen medical bills or fewer hours worked or temporary layoff can send these people into economic tailspin which very likely would adversely affect their FICO score.
Credit providers certainly should look at a person’s credit history and ability to pay their bills on time but a auto or homeowner insurer is not extending credit when they agreee to write a policy. A person may be laid off from work but it does not affect their ability to safely drive an automobile.
The use of credit scoring in underwriting personal lines insurance is a clever discriminatroy practice that leaves no obvious ‘fingerprints’. The carriers nontheless each purchase from Fair Isaacs a tailor made program or or develop their own formula for how they ‘massage’ the raw data.
Insurers should give up the credit scoring mantra and base their auto underwriting, for example, on relevant factors such as make/type/age of vehicle, driving experience, miles driven, use of auto (pleasure, commuting) and prior claim/loss activity. Don’t use a person’s FICO Score to decide who will be issued a policy or how much they will pay for that policy.
I totally agree with EVERYTHING Rolf Neuschaefer just posted. I was a Personal Lines Underwriter for 23 years before I recently retired. Credit scoring is done automatically via the computer systems between the ins. Company and the reporting agencies. All the Underwriter has to do is make a “black or white” decision based strictly on a total point score of credit. IMO – this has NOTHING to do with an insured’s moral values of putting in claims under an insurance policy. There are too many things that can lower a credit score that are beyond the control of the insured. I am totally against credit scoring and always have been! Most of the time, the computer in the Ins. Co. will automatically decline an application BEFORE it even reaches an Underwriter if the credit score is lower than what the Company finds “acceptable”. More States should do what Massachusetts has done – Ban ALL Credit Scoring!!!!!
Happy days for the consumers in Massachusetts! Credit Scoring is nothing more than high-tech red-lining at its worst.
I read how easy it is for those to slam the use of credit scoring, but how do you logically discount the factual actuarially proven correlation between a higher risk credit profile verses a lower risk credit profile?
OK, you argue that this can’t have anything to do with insurance; it’s a person’s bill paying habits, that’s all. Any correlation is just coincidental.
Please use this same argument on other rating factors such as age. Why is it that says my 16-year-old son should pay higher rates? He’s never had an accident. He’s very responsible. He’s learned driving well and shows responsible patterns. Why should someone 34 years old get lower rates? For that matter, why should someone over the age of 72 pay more as well? So what if their response time is diminished, hearing going bad, sight not what it used to be, right? They still haven’t had an accident… yet!
How about me, say I have a lot of speeding tickets, but never an accident or claim. Why should I pay higher rates?
Ok, I’ve now had my one life-time accident, I didn’t see that fire hydrant when backing up in an unfamiliar parking lot, this’ll never happen again, why should I pay more for this over the next three years than say my twin brother who hasn’t had an accident?
Why should someone living in the country (who doesn’t fight the bumper-to-bumper 70 mph rush hour traffic, Car Jackings, and wild mixture of weirdoes on the road) be charge less? So what if the majority of miles put on their car is in very light traffic on roads with fewer traffic hazards?
People, these are actuary factual risk indicators. These are the variances in insurance pricing that reward lower risk behavior and environment, and penalize higher risk behavior and environment. This used to be considered fair. You have a choice in your behavior and where you live. You can choose to operate your automobile in a defensive safe manner, or you can disregard a level of safety. For those who sacrifice convenience and desire for safety, they get a reward. For those who disregard a higher level of safety, they pay a surcharge. That’s choice and reward.
Maybe you question what fairness really is. Maybe it feels wrong to surcharge someone with high-risk indicators. Why not socialize insurance pricing? Why not all pay the same amount. You know, those now paying $700 per year give up your credits to those paying $1,400 per year and all of us pay $1,050 per year. Guess what, next year that price will be $1,250, then $1,300 and so forth, since now we’ve penalized safer drivers, there’s no longer any incentive. We’ve removed the disincentive for high-risk drivers, so why should they care if they’re in an accident? It won’t cost THEM any more? This is similar to insurance regulation in some states Eastern Board States and Hawaii. They â€Ŕsocialized†auto rates for many years. Now, with auto rates the highest in the nation, they are looking to deregulate and introduce more diverse rating practices. Folks, THIS is insurance. THIS is equitably spreading the risk to maintain a set of proper incentives. THIS is a more equitable, efficient and competitive rating mechanism healthiest for our society. This is fairness. This rewards those who save society by not having claims. This penalizes those cost society in claims. Would you like your version of fairness in criminal penalties? Would you want all crimes to have the same punishment regardless of its nature? How about all citizens serve some time in jail so that those serving life can be commuted to a lower time served? Now that sounds like your version of fair!
Don’t take my rating discounts away from me and my low-risk behavior friends and clients. You can keep your high-risk accepting rules if you want, but I think you should pay for them, not have me help pay for them.
I am a licensed P&C agent & have been in the business for over 10 yrs. I wish all states would follow Mass. in banning credit scoring. I think it is a descriminating practice that should not be tolerated by the American people. It basically catagorizes all people who have had problems with their credit for whatever reason, as a high risk insured who will try to pay their bills with their insurance company’s help. Isn’t that a bit far fetched to think that all of us are scamming on how to defraud the insurance company. I have ran excellant insurance risks, ie. proffessional business men and woman with no losses and good driving records who came back with unacceptable credit scores. How do you explain to them that they are a risk in the insurance company’s eyes.
I am both amazed and appalled at the willingness of people to condemn something based upon little or no information. Mr. Wood got it right. Statistical correlations have nothing to do with causation. Numerous studies using long-accepted methodologies have provided solid, supportable data showing a strong correlation between claim propensity and insurance scores. These studies stand on their own merits and it is specious to question their validity based solely on who paid for them. Properly applied, insurance scores help as many or more people than they hurt. (This is due to the fact that high risks consume a disproportionate share of the costs.) Several producers have noted that they can leesen the impact of DUI for an individual (say a parent coming home from a wedding with no history of DUI) by applying the insurance score to show a lower risk of recurrence. It is human nature for high risks to want to be subsidized by lower risks because it inurs solely to their benefit. However, auto insurance is an area where people can be given a financial incentive to change their conduct. Insurance scores have proven to be an impartial means of effectivley identifying the higher risks. No one knows why insurancing scoring has such a strong correlation to claim experience, but that is true of other factors as well. Is it sex discrimination not to charge 16 year-old girls the same rate as boys? Why is it that girls don’t have the same loss experience as the boys of the same age. No one knows for sure, but we do know it from their experience and if it is good enough there, it is good enough for insurance scoring which has the same or an even stronger correlation than age and sex.
Finally, the NCOIL model and most state regs and laws exclude the use of medical bills or divorce and other external events, so that those whose scores are low due to an event outside their control will not be penalized.
I do think the companies have done an exceptionally poor job of educating their insureds about how insurance scoring works and what its actual impact upon consumers is overall. Thus, adding more fuel to the fires of critics who have little or no real information upon which to form their opinions. While insurance scoring’s strength of correlation is deemed high, it is only in relation the the correlation of other common factors. If we could truly identify and charge high risks according to their risk exposure, it would no longer be insurance (no spreading of risk), but insurance scoring is long,long way from that possibility.
The insurance industry claims there is actuarial support for use of credit scores to predict risk. Why then have the loss ratios of many companies gotten worse instead of better since credit scoring was introduced?
To educate people who do NOT work in the Ins. industry as an Underwriter, the credit scoring is based on more than how you pay your bills – but this does carry a large percentage of the overall “score”. They also take into account how long you have resided at your present residence(if you have just moved, your score is lowered!), if you are single or married(single is a lower rating), how many inquiries have been made into your credit record(mortgage shopping would lower it). True, a “divorce” does not enter into the scoring -BUT-indirectly is does as you are now considered”single”! The fact you have less money to live on means you also might get behiend in some of your bills, or your ex-husband stops paying child support or alimony payments drastically reducing your income! Credit scoring does NOT have anything to do with your driving record which is a better indicator of how “responsible” you are behiend the wheel of a car. A CLUE report is a better indicator of your claims and driving history as it will reflect every single claim you have presented to an ins. company for the past 5 years. As I said it before – credit scoring is wrong! IMO – it is “red lining” by the insurance companies. Being “rich” does NOT make a person less claim conscious.
Thank you for some sanity Mr. Wood and Mr. Kirven! If you look at the arguments of the previous postings they don’t make any sense. They say the carriers use this to underwrite because it’s cheaper. If it doesn’t work to properly predict losses then they would use it would they! So, if you assume it works then the argument is that it isn’t fair and redlines. I can’t think of a single company that will turn down a good risk that fits their underwriting criteria if the applicant can pay the bills. FICO scores are all over the map and to my knowledge have very little to do with geographic or economic areas. The averages vary widely by state. Economic stability could most certainly affect a credit score because it can affect someone’s ability to pay their bills (including their insurance payment). Income level, age, and most other demographics, however, do not affect someone’s FICO. As Mr. Wood pointed out, we discriminate against all those drivers out there who get speeding tickets but never get into accidents and have claims. The reason is that there is a proven correlation between speeding tickets and FUTURE claims. The same correlation exists between a low insurance score and FUTURE claims. Yes, not everyone with a low score is a bad risk but the evidence is overwhelming and the correlation is so high that it is a tool that should be allowed to be used by the industry. Please show me the independent study that shows why all the factors that are traditionally used to underwrite are valid. There actually is an independent study showing the correlation between credit score and future claims that was conducted in March of 2003. Here is a link to that page http://www.mccombs.utexas.edu/news/pressreleases/insurance_study03.asp
Face the facts, it works, it’s fair, and it benefits most insureds.
1-(908) 608-1700
Your credit score impacts your rates
Is credit scoring fair? Accurate?
What is my FICO score?
Do’s & Don’ts for best credit scores
Your credit score impacts your rates
Insurance companies get your credit score converted into an “insurance score” and judge what you should pay in premiums  the lower your score, the more you pay.
Insurance companies have used credit scores for quite some time to judge risk. In New Jersey, this has been primarily done in the homeowner’s insurance area. But to attract one new auto insurer to NJ (Mercury), the NJ Department of Banking Insurance is allowing them to use credit scoring to set premiums. It’s logical to assume that other auto insurance providers will soon be permitted to use credit scoring also.
This is an important issue and we will devote much of this month’s “Insurance Matters” giving you helpful insights on credit scoring and how you can improve or maintain yours.
Is credit scoring fair? Accurate?
Insurance companies say it is and point to a number of studies that show a correlation of lower scores to higher claims.
Consumer groups say this is not fair because it tends to penalize minority groups and those with low incomes.
Credit scores can vary as much as 50 points depending upon which credit bureau provides the report. Some reports contain errors.
If a lender turns you down, they are required by law to notify you in writing and give you information on the credit bureau that provided the report.
Insurance companies are not required to tell you your “insurance score” or even how they determined that score. Under the Fair Credit Reporting Act they are required to notify for of “any adverse action”  cancellation, premium increase, etc.  but not when quoting initial rates.
If credit scoring is not allowed, is it fair for those with good scores to subsidize those with poorer scores?
These are all good points and, depending upon a person’s perspective, opinions vary.
Insurance companies need to make a profit. If credit scoring provides an accurate picture of future risk, why shouldn’t it be used?
If you are struggling with your bills are you really more likely to file an insurance claim? Suppose you lose your job and fall behind on some of your payments, lowering your credit score, will your insurance rates go up right away? Conversely, if you improve your credit score, when will your rates go down?
How often do insurance companies evaluate your credit score?
These are all valid questions. The answers vary by person, by company, and by state. Credit scoring has been and will be around for quite some time. It may or not be fair. Will it be used accurately, objectively, and uniformly? No one really has those answers. But, to make the best of the current situation, read on to learn more about your credit score and the “do’s and don’ts” for improving your score.
What is my FICO score?
It’s a number from 300-850  the higher the number the better.
This number is generated by an almost magical formula that used to be totally secret. It was developed by the Fair Isaac Company (hence the name FICO score).
The formula assigns values to past credit history and current activity. Here are the important percentages that comprise your score:
Debt payment history………………………………………………35%
Outstanding debt and number of accounts …………………….30%
Length of credit history……………………………………………15%
Type and number of accounts……………………………………10%
New accounts and recent requests for credit …………………10%
How you fare in each category determines your current credit score. Your FICO score changes. Your score next week may be different than today. It goes up and down depending upon how much you pay, when you pay, and what new credit you request. It is a current snapshot of your credit performance.
Do’s & Don’ts for best credit scores
Do get your credit report and check it for errors. These reports are available from the three main credits reporting agencies and from Fair Isaac Company. They cost from $12.95  $34.95, but are worth the expense.
You can order these online at:
http://www.equifax.com
http://www.transunion.com
http://www.experian.com
http://www.myfico.com
Note: There are other web sites that offer free credit reports. However, some of them may use methods that result as a “hard inquiry” on your credit history, which lowers your score.
Don’t close out old accounts. Keeping them with no or a little balance helps your credit score in the length of credit history and amount of unused credit available. If you close out accounts, close the most recent ones.
Do get your credit cards balances to below 30% of credit line. This increases the amount of unused credit available and is good for your score.
Don’t consolidate your credit card debts using a new credit card. This adds one more creditor and does not reduce the amount of debt.
Do pay the bills when they come in. Don’t wait until just before they are due. Paying early can help. Paying late hurts.
Don’t open a new store account unless you must. Resist the temptation. Each new account is another credit inquiry that counts against you. Older credit helps, newer credit hurts.
(c)www.insurancematters.net
“Creditors have better memories than debtors”  Benjamin Franklin