Have you heard of Credit scoring? Yes – awesome – what is your opinion? Feel free to share it below, i welcome a conversation about it. No? Well i think you should – because you may be in for a surprise.
According to Wikipedia, an insurance credit score is a numerical point system based on select credit report characteristics.
I am in the business and I understand this but what does it mean? It means that some insurance companies perform a “soft credit check” on you in order to determine your “risk” factor. The higher the credit score, the better the risk you are, the lower the worse.
This is a huge deal in the marketplace. According to Canadian Underwriter Magazine this is a issue left to government and that the push to have every insurer use this as standard policy when underwriter your home and auto insurance isn’t happening yet.
Okay, so what’s the big issue? Who cares if they perform a soft credit check on me – i have good credit!
The big issue is that not everyone does have good credit. We cannot fully understand why their score is like that so how can an insurer justify “amending” their insurance rates based on their score? Conversely, someone could have the best credit in the world and be the lousiest driver / homeowner, costing the insurer hundreds of thousands in claim money. Credit scoring is a tool to assist and guide rates but in this ever tightening market for home and auto insurance, it may be more of a misleading tool than helpful one.
At the moment, some insurers will perform credit checks and others won’t. Your agent/broker will know which ones are and have to ask your permission to do so (often they may not).
We no longer live in a world where we can simply assume that our best interests are protected. We have to become more and more knowledgeable about what affects us and our family and our credit rating …