Fairness and Affects of Credit Scoring on Insurance Premiums

Fairness and Affects of Credit Scoring on Insurance Premiums

admin October 23, 2018

Using credit scores as part of life, home, business or auto insurance quote algorithm has been contentious from the start. Yet, it has been gaining wide acceptance rather than going away. Now, around forty states allow it to be an acceptable practice. We can go into details of it and discuss if it is fair or discriminatory. However, nothing will hardly chance as this applications has already been challenged in the courts and each time insurance companies managed to argue their point and win.

What Is Credit Scoring?

Credit scoring is a way of reducing all your financial affairs and other dealings into one handy number to be processed easily. There are a few companies that look into credit activities and determine a score for each person based on their proprietary formulas. Again they were challenged to reveal these formulas and court decided that they don’t have to as they are their intellectual property. These scores then are taken by the insurers and plugged into their premium calculation algorithm.

Why Credit Scoring Is Important?

Depending on which car insurance carrier you apply your premium can be affected as much as twenty percent. If you have a perfect score it is a great news for you. However, it would mean that you cannot get the best prices if you have a poor score. It may appear to be an unfair treatment of people whose finances aren’t in order. But we are not going to get into that anymore since that argument appear to be lost. What we need to know is that credit score does affect our premiums and we’d better find an effective way to deal with it.

How Each Vehicle Insurer Looks at Credit Score?

Each company has their own premium calculations that credit score is part of. Some companies place higher importance to credit scores than others. Those are the companies you should be looking for if you have a good score. If the opposite, you should be looking for companies that don’t look at credit score or don’t place much importance on it. However, it is a bit more complicated and it is hard for us to tell how each company calculates their premiums. They will never share their formulas.

The only way for motorists to get round this problem is to get several quotes and see which company is offering the best policy and price overall. There are various ways of getting quotes. Simplest way is to get online, find a comparison website and get a few quotes there and then. You can find an insurance broker and let him check it for you as well. So, it is best not to get wound up with credit score and its fairness but see if you can improve it to get better car insurance rats. Otherwise, you could see how you could get round this particular problem so that it doesn’t affect you as much.

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