How Would A Credit Freeze Impact My Insurance?

In 2017 Equifax had a massive data breach which resulted in many consumers having their credit information made public. One of the responses to managing ones confidential information is to place a credit freeze or security freeze with the major credit reporting bureaus.  There are pros and cons to this approach

The Pros of having a Credit Freeze

Having a credit freeze will make it more difficult for identity thieves to open a new credit account in your name. Most creditors need to see your credit report in order to open a new line of credit.  A freeze will block a potential creditor from seeing your credit score.

The upside is your information is protected and your credit score will not be impacted. However, there is a downside to this.

Credit Scoring and Insurance

More insurance companies are using credit scores in the underwriting process of Personal Autos, Homeowners, Renters Insurance, and even Commercial Auto & Package policies. When you are buying a policy or renewing existing coverage your insurance company will inquire of one of the three major credit bureaus for your credit score. 

If you call your insurance company you will get a customer service representative tell you that they don’t have credit scores but have insurance scores instead. It will leave you with the impression that insurance scores and credit scores have nothing to do with each other.  The reality is they are closely related to each other.  Your credit score is a reflection of the amount of debt you have, payment history, number of accounts, and how long you have had them.  Whereas an insurance score contemplates this same information but adds to the list your claim history, driving record, home security features etc.

The Cons, from an insurance perspective, of a Credit Freeze

If you have a freeze on your credit file then the insurance company can’t make up an accurate insurance score, and that will have an impact on what you are paying for your insurance.

So if an insurance company can’t make up an insurance score because of a credit freeze there are a few things that may happen:

 

  1. The insurance may alert you that they can’t obtain your insurance score and you must get the credit freeze lifted. This may cause you to not receive an accurate quote in a reasonable time.
  2. They may assign you to a “neutral” rating category where your insurance score has no impact on the rating of your policy. The downside to this is if you have a really high score you could be paying more for your insurance. Although if your score is low a “neutral” rating means you are paying less than you should be.
  3. They may assign you to a higher level of rate and you will pay more than you probably should or want to.

There is open debate on the validity of credit scores for underwriting of insurance policies, however, in the foreseeable future they will be an integral part of underwriting insurance.

How Does One Get a Credit Freeze

Depending on the state that you live the lifting of a credit freeze may or may not cost you anything. What you can do is find out what credit bureau the insurance company uses and ask that credit bureau can lift the credit freeze temporarily for that specific insurance company.

To contact the three major credit bureaus here are their phone numbers:

Equifax — 1-800-349-9960

Experian — 1‑888‑397‑3742

TransUnion — 1-888-909-8872

If you have already have a credit freeze on your account you should have a PIN number or password that they previously sent you.

Having a credit freeze is not a bad idea to protect you from identity thieves. Having one does mean you will have to be more diligent in staying on top of your insurance program to make sure you are not paying more than you should.


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Scott Harrigan, CIC, CRM

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