There is a strong push by the insurance industry to use credit scoring when determining the rate a customer will be charged for auto and homeowners insurance.  If you have a good credit history you pay a lower rate, have a bad history and you can expect to pay more.   

Because your credit score depends on having the right kind of information in your credit report, you can have a perfect credit history and still have a bad credit score. Your credit score has nothing to do with your financial responsibility.

Your credit report can vary dramatically among the three major credit bureaus.  Your credit score can vary from good to bad depending upon which bureau provided your insurer with information 

Errors on your credit report could prove to be very costly.  Your credit score will be adversely affected if you choose to use cash or checks instead of credit cards.  If you use credit cards but pay the balance off each month your credit score will suffer.  What if you are recently widowed or are happen to be a single parent and haven’t established credit in your own name?  You guessed it, major credit report problem.  The number of inquiries made to your credit report also affects your credit score.   

Because your credit score depends on the ratio of your debt to your credit card limit, a consumer who uses one credit card to maximize frequent flier miles gets a lower score than another consumer who charges the same amount but does it on three or four cards.  

Using credit scoring as a tool to determine insurance rates is problematic.  Did you know that your credit rating changes from one day to the next?  Which credit score should the insurance companies use if a husband’s score is worse than his wife’s score? 

What concerns me the most is that the entire process of credit scoring is SECRET.  That’s right…  the formula used by the credit scoring companies and how insurance companies will use the credit ratings to establish rates is considered a trade secret. 

It is my opinion that until insurance companies can establish a correlation between credit scores and the risk of potential losses that credit scoring should not be a part of the rate determination process.