Credit Score is Predicative. But should it be used?

[shawnmwalker]

I was at Insurtech a few weeks ago in Vegas. There was a good conversation on Credit score.

I would boil it all down to this one statement. Credit score (Insurance score: Whatever) is predictive . But just because you CAN run a predictive credit score does not mean that you should.

Would love to hear your thoughts.

I will throw in a few zingers to heat things up:

• If I pay my $2,000 mortgage on time, my credited score goes up. If I pay my $2,000 rent on time, it does nothing for my credit score.
• 
  
• If we don't use predictive credit scores in insurance because.... Then where else do we stop using credit to determine things like Loans. credit limits, car purchases, Rental agreements, interest rates, etc..

 

[Nautilus5711]

You acknowledge they are predictive and ask if we should stop using them. If they are predictive, why should they not be used? What prompts the question?

Credit score is a predictor to responsible behavior and financial stability, two important factors insurance companies need to know when assessing potential clients. Eliminating credit score will only increase prices for good customers.

 

[shawnmwalker]

"Credit Score is Predictive, But is it Fair?"

'If CS corelates with hard braking then just use hard braking.'

'Magazines you order are predictive in your propensity of loss, a fishing magazine vs a Better homes and Gardens.'

 

[Nautilus5711]

No idea what you're getting at. There is no way to accurately track and gauge "hard braking" for potential insurance clients and aside from there being no way to track magazine subscriptions, that would also be a ridiculous metric.

In the realm of behavior analysis, financial behavior is strongly correlated with personal behavior. Insurance companies wouldn't use something that didn't work.

 

[shawnmwalker]

Just because it works does not mean you should use it. That's the debate.

You can track hard braking, easy! (Telematics)
And there IS coloration that subscribers of some magazines have higher Losses that others.

Just because an Insurance company has a variable that works, does that justify the use of the variable? (Credit score does work; its the #1 rating variable in most carrier algorithms. BTW, Telematics is becoming/ replacing Credit as the #1 variable in the Algorithm)

Is Credit a fair Variable to use if a Person who owns a home gets a better Credit score when a Renter who pays the same and on time, does not get a better CS.

 

[Nautilus5711]

Telematics can be easily manipulated. Put a tracker in my car for a month and you can bet I'd drive like a grandma until that thing is out so I can get lower insurance.

Credit score is reliable and fair. Homeowners are a lower risk to insurers because just like credit score, that too is an indicator of behavior. So is if you are married, what profession you are in, and if you are a male or female. You can also still have a very high credit score without owning a home.

 

[Allen Trent]

It is a massive money maker for the credit data collection companies who have marketed it well with insurance carriers. With that said, the credit data collection industry is so fraught with errors, it really shouldn't be allowed to be used on an individual basis as they don't disclose the point system to know how to improve your score. Just run your credit score & look at the big 3 reports. Even those of us that do so on a regular basis have errors on our reports showing wrong addresses, accounts that have been closed. Some, solely because someone fat fingered an account # or SS # on some paperwork. Every 3 years, I report at least 3-5 errors on my 3 reports run & I have only a mortgage & 1 credit card.

I benefit from the current insurance scoring systems, but it is a terribly inaccurate system that allows the players to not disclose the rules that impact all

 

[marindependent]

Thank you for the post, great topic. Insurance Scores are "illegal" in several states.

Some argue that credit scores [and hence insurance scores] can be biased. Not saying that I necesarily believe this.

 

[shawnmwalker]

HI, Mass, CA, WA..... ^^^^^^^^^

 

[adjusterjack]

I was at Insurtech a few weeks ago in Vegas.

What do you mean "at Insurtech"? Insurtech isn't a place, it's a concept, an idea for combining insurance with technology. It shouldn't even be capitalized unless it's at the beginning of a sentence.

Saying "I was at Insurtech" is like saying "I was at "Religion."

Credit score (Insurance score: Whatever) is predictive . But just because you CAN run a predictive credit score does not mean that you should.

Who, or what, "at Insurtech" was saying that a credit score shouldn't be used? Somebody with an axe to grind against insurance companies? Somebody who wants to sell something to insurance companies? Something else?

If I pay my $2,000 mortgage on time, my credited score goes up. If I pay my $2,000 rent on time, it does nothing for my credit score. Is Credit a fair Variable to use if a Person who owns a home gets a better Credit score when a Renter who pays the same and on time, does not get a better CS.

That's a fallacious argument. A credit score is made up of many factors. I'm sure that there are millions of renters who have an 800 credit score. My sister has been a renter all her life and her score hovers around 820 while I, a homeowner for the last 45 years, have a score that hovers around 800.

Just because an Insurance company has a variable that works, does that justify the use of the variable?

It is certainly justified to the insurance company that uses it.

Put a tracker in my car for a month and you can bet I'd drive like a grandma until that thing is out so I can get lower insurance.

That's right. I have one in my Challenger. I'm driving like Grandma driving a Honda. As soon as the trial period is over and the device is returned, I plan on putting some rubber on the pavement. LOL.

Every 3 years, I report at least 3-5 errors on my 3 reports run & I have only a mortgage & 1 credit card.

So? What's your credit score, Allen, in spite of all those errors that got corrected?