Let me get this straight, credit ratings are now racist?

I'm not touching this one with a ten foot pole.

Credit score should be used for NOTHING but lending money. Using it for other purposes can lead to turning away of responsible clients.

All that is being done by this is letting a debt based society drive the motivation behind our economy. That turned out well for the sub prime mortgages, didn't it?

My family's goal is to have a credit score of ZERO.

Currently our only debt is our mortgage. That will be paid off in about 10 years (if not sooner). We have a nice stockpile of emergency cash in the bank. Why would a company turn away our business (and by charging us higher rates for being fiscally responsible they are turning us away...) because we live within our means and are responsible?

Lol, love the picture took me a while to get it. And I would love to explain how credit ratings don't really work the same ways for different "demographics", but I'm not touching that one with a twenty foot pole... at least not in this setting.

No, you should not be charged more for insurance based on credit rating. That's what credit cards, mortgages, loans, etc are for.

Allow me to pull a ten foot poll out of my bag...

I assume that the 'theory' of this is that if you are responsible with one thing, 'money', you will be responsible in all things, such as driving. And if anyone can offer any other explanation (excuse?) for this practice, please let me know.

The question that stems from this and is actually independent of my theory is one of a corralation of data...can it be shown, one way or the other that there is/is not a relationship?

On the off chance that there is, then what is the big deal? Insurance is all about gambling risk assessment. You have to work with the data you have.

Of course, if this is not true, WOW...what a scam.

No, credit ratings are straight-up factual, and they are also proven to accurately predict the number of claims and the amount of those claims a customer will make. From a completely logical, every-man-for-himself standpoint, it makes perfect sense to use them.

But if certain groups have historically had lower credit scores, then unless you think that credit worthiness is genetically determined, it's possible that this statistically-accurate practice will disproportionately effect more members of those groups. So what seems a perfectly reasonable practice might be less fair if applied to a market that's not completely balanced, where every consumer isn't born into the same set of conditions.

Personally, I think the question to ask is why credit scores and insurance claims are linked: are people with low credit gaming the system more? If so, why? Could it be that both things are caused by another factor, like income level, education, etc.?

Fun Friday topic!!!

*my "No" comment above was a direct response to the first comment by Roche. I should have clarified.

It's the same old (lame old) correlation vs. causation crap. It's hard and expensive to figure out which driver is a higher risk, but insurance companies can get a super-cheap 1st approximation of whether someone is in a "category" of high risk by looking at another category of risk - credit risk. That doesn't make it fair or right. Past driving record is a better indicator, on the spot driving test might be better still, but that's expensive. Hell, shoe size probably correlates with risk, but if insurance companies put that out and the FTC obediently said "yup, it correlates" people would still, rightfully, laugh them out of the room. Credit scores don't indicate risk, they correlate with risk!

@JAVERT... Insurance companies make a lot of assumptions based on small facts that they know. Such as guys suddenly become better drivers when they turn 25 (since that is when we get our premium discount) or that everyone who gets married is a better driver than when they are single.

Probably going to sound racist, but I don't have a whole lot of sympathy for people with bad credit (no credit or young credit is a different issue). You made a promise to pay someone and when you don't you should be punished for it. Responsibility and Accountability have gone in the shitter in today's society.

I don't understand how bad credit makes somebody a bad driver, and for that reason, I don't think credit scores should affect car insurance premiums. As for a link between credit scores and the number of claims a customer makes, that sounds to me like correlation, not causation.

Why should I pay more for my insurance because someone else is more irresponsible than my (risk) peers?

@Javert:

The theory isn't just being responsible in multiple areas. I know a lot of fiscally responsible people who drive like maniacs. What probably happened is that the underwriters started looking for new data points a few years back and discovered a strong correlation between a person's credit score, number of claims filed, and average cost of those claims. Since insurance rates are all based on how much risk you represent to the company, this means that people with better credit are less likely to be a risk. In a way, it's no different than age, school grades, income, or any of the other dozens of things that go into factoring insurance rates. Studies show that students that get better grades tend to be better drivers. Studies show that young drivers tend to be at fault for more accidents.

The race thing is just rediculous attention whoring. Here's what it should really say:

X number of people have a low enough credit score to be affected by this policy.\

Of those people, Y are white, Z are African American, P are Hispanic, Q are Asian, etc.

Y/total white population= Y% of whites will pay more because of this.

Z/totatl black population = Z% of blacks will pay more.

Unless someone can argue either that:
A) Credit scores are inherantly rascist,
B) The insurance companies specifically enacted this because of disproportionate effects,
I don't see how anyone could see racism here. It's a simple forumla: raise credit score, lower insurance rates. They don't care what you look like, just what the number is.

Lol how many people know a person that you are actually scared to ride with because they have no idea how to drive, yet they have a perfect credit score? My ex gf talking on her cell while driving would be a good example. Anyhow, I believe insurance rates should be based solely on driving record. Not age, sex, color, credit scores, blah blah. Here I am, a perfect driver, with no tickets, no accidents EVER, and I have to pay more insurance than my gf who has multiple tickets and accidents, simply because she is a girl, and I am a younger male. Ridiculous.

I don't think your credit score should be used for anything let alone your car insurance. Until they take the veil of how the score is actually calculated and stop making it so you have to pay to find out what the number is it shouldn't have any bearing on your life.
Your driving record should be what determines your rate. Not a credit score, not sex, not age.

A little bit of a jump here for me....I missed how credit scores and race tie together....

I think it would be more hogwash to try to add race as a factor to adjust premiums down based on average scores for your race. Honestly, this policy is race neutral while working to provide a benefit for those most predictable.

Credit score seems to be a handy indicator of safe driving behavior (or at least lower overall risk). If insurance companies can use this to reasonably ease their actuarial risk assessments, then why not?

The first-level application is not racist at all. It may disproportionately affect minorities, but not because they're non-white, because they have disproportionately bad credit. It obviously puts a heavier burden on those with bad credit, but if that's the same group that statistically has more auto accidents...

However, there is an argument to be made that credit score isn't a "fair" correlation to use, as minorities may not have had the same chances to build up good credit, etc., but I think it's a hard argument to make in our credit-happy society.

I have spotty credit because of a medical crisis in my family. Drive a mini-van, and have never in 17 years of driving, including 6 of those years in a tractor trailer, had an accident, or ticket. Yet, Allstate insurance tried raising my premiums from $425 twice a year to $656 twice a year. And I'm a white male. Race in my opinion, is just collateral damage. My agent overrode the "system" and locked in my same premium which I feel is fair for full coverage on a mini-van.

The whole argument however, I feel is flawed. When I first came back to the states after three years overseas, I went through State Farm who wouldn't even give me a quote, Geico, who was outrageous, then to Allstate who gave me the rate I have now. Did they let me in at the start just to jack me later? Maybe. If this happens to anyone I highly suggest talking to your agent. Show them you are not a claim filing fraudster. You might have the same luck I did.

@iMike:
Because your insurance company doesn't look at you, they look at large groups of people who share your characteristics. Based on that information, your X% likely to result in a claim. It's all cold, hard numbers based on general probabilities of large groups.

@Saboth: But the simple truth is that insurance costs are legitimately based on a LOT more than simply your driving history. Where you live, whether you own a high-theft vehicle, age, etc. To say that "it should just be based on driving history" discounts a world of statistical analysis and would probably bankrupt every auto insurance company.

is all right charge us all more, and when will everyone realize they are more and more enslaved... before it used to be egypt on jews, whites on blacks... now is coorporations on everyone... funny thing is they make laws and they profit from this, but does the money benefit anyone besides an entity?

It's the insurance companies' fault for wanting to pigeonhole people into neat little "demographics" such as age, race, marital status, or gender, but if these people want to complain that their rates would be unfairly affected, they ought to get in line behind every safe 18-25 male drive in the contry.

@B: @projoe1979:
There are studies that indicate a pretty strong tie to credit (and sex and age) and the number and cost of accidents. Tell me how a 20 year old male who has been irresponsible with his credit cards but still drives his modified civic is the same risk as my mother driving the same car (50, female, no accidents, 1 lifetime ticket, and driving for almost 35 years). Just because someone HASN'T had anything on the driving record indicates NOTHING.

There's a very strong correlation between credit score and losses. It may not seem to make sense - and it might not - but simple correlation is enough to encourage insurance companies to use it. It's very similar to a good student discount; actuaries found a strong correlation between good grades and safe driving, and therefore give a discount for good grades.

Yes, of course there are people with good credit scores who are bad drivers and bad credit who are good drivers. They're outliers though; a correlation doesn't require that every member of a population follow the same trend line.

@Javert: "can it be shown, one way or the other that there is/is not a relationship?"

There's a correlation, but the problem is that (as others have noted) there's nothing INHERENT in being responsible or irresponsible with money that makes you responsible or irresponsible as a driver. So some people who are very poor drivers can get excellent rates, and some people who are very GOOD drivers can't get any insurance at all.

Around here the complaint is not that the credit scores are being used; it's that companies may use them as the ONLY tool for evaluating someone's insurance risk, and since Illinois is a mandatory insurance state, that effectively locks poor people out of driving (because they have bad credit because they are poor and they get socked with outrageous insurance rates because of their bad credit, which they can't afford to pay, so they can't drive, so they can't work ...)

It's sort-of the same problem where people who don't use credit cards and are very fiscally responsible can't get mortgages because they don't have a "credit history." It's not that using credit history to assess mortgage risk is BAD, it's just that there should be an alternative method for when that system fails, as it obviously sometimes will.

(It seems from what I've read that complaints are more vigorous in other places, so the problem may be larger or different elsewhere.)

I hate paying for insurance on my car. My credit is not so hot, and this means I will have to pay more because of it? I have never had a traffic ticket or accident. This story put a damper on my Friday...bummer.

I think this enters into the realm of employers checking credit scores before they hire applicants. They figure that someone who's having money problems is prone to selling the company's secrets for a quick buck or has an unstable life that will lead to on-the-job troubles.

By that same token, I imagine that a lot of the credit-unworthy customers are quick to do the "OH my neck hurts!!!!" after an accident and bilk the insurers out of shloads of money. It's not so much about credit score -> safe driving as much as credit score -> how much insurers pay out per accident. I imagine a lot of genuine statistical research is out there (privately, of course) to back this up.

This is exactly why to shop around. Some agents will work with you based on individual circumstances. If they know that you had a bankruptcy but you are indeed an accident-free, safe driver, they will deal. You need to shop, and you need to ask. In most reputable companies, there is quite a bit of circumstantial wiggle room for what you pay.

isn't there a reporting system already set up to monitor your insurance claims and driving record? Why don't the insurance companies use that one, or does that not allow them to bilk customers?

I should add also that this might fall in the realm of "call and see what they can do for your rate", same as calling the credit card company to ask for a lower interest rate. Give it a try; I've haggled with my agent a couple times to my advantage.

Credit rating=/=driving risk. Period. Case closed.

Credit rating is a bad indicator of credit risk, let alone any other risk. The scores are rigged so that you can't shop around for different credit cards (you don't know what the exact terms and conditions are until you apply and are approved), thus limiting choice.

I don't have an excellent credit score, but I never had an accident, and had one speeding ticket. That's it. Compare that to people who are 20 years older than me that get speeding tickets on a monthly basis.

I'm just surprised they don't use driver's tests in considering your car insurance rates.

The insurance company that does manual underwriting and research gets my dollars. If I have a low credit score because I don't have a credit card or borrow money doesn't mean I'll let a pen pusher somewhere charge me more...

When my mom bought her lexus though, Allstate tried to raise the insurance rate from $550 every 6 months to $900 every 6 months. We threatened to move to Geico, and the rate came down to $600, which was about as much as the Geico quote. What assholes. If they think for a second that people won't move insurance companies over rates, they're sadly mistaken.

"Credit score seems to be a handy indicator of safe driving behavior"....

Credit score seems also to be a handy indicator that someone had a marriage go south and get alimonied up the ying-yang (or the other spouse doesnt see a penny of the alimony agreed to in order to support a house on her basic wages), or lost one's house because both spouses jobs went to (insert foreign country of choice), or the kid needs major back surgery not covered by BC, or etc etc etc

Insurance should be based on driving record, and the filings and claims of that residents city or town.

@Eyebrows McGee: "There's nothing INHERENT [about your credit score]... that makes you responsible or irresponsible as a driver." But that's obviously true of being a young male driver, or owning a Maserati, or a world of other things that factor into your insurance.

And the exact complaint (okay, as determined by my unscientific sampling of outraged Consumerist readers) seems to be that credit scores are being used at all -- as the McClatchy article points out, "Insurers typically give more weight to factors such as an individual's driving record, the type of vehicle they own and the area where the car owner lives."

Since insurance companies can't really say "Well, okay, we'll just let each driver have the same affordable insurance for several years until there's enough individualized data to review their likelihood of filing a claim", they need to come up with reasonable alternative measures. Credit score seems to be one such measure.

@NoWin: Okay, here's the confession. I'm not a statistician or an actuary. But I bet you aren't either. And the insurance companies hire hundreds of these folks, whose entire job consists of running risk analysis based on different factors and determining how you can predict which customers are likely to incur claims. Sure, it's not perfect - these people are mathematical analysts, not psychics, but it works pretty well.

Sure, you can come up with an anecdote about how credit score means whatever else, but that doesn't mean that the statistical model doesn't work. And if you're one of those "hey, I'm a good driver I swear!" folks with bad credit, then explain that to your insurance agent, and shop around. Insurance companies, believe it or not, are not interested in weeding out "folks with marriage problems" unless they also happen to be "folks who are statistically really likely to rack up huge insurance costs."

@Beerad: If you read my entire post, you'll note that I said that where *I* live the complaint isn't that it's being used -- there is a correlation, just like there's a correlation between being under 25 and having accidents -- it's that it may be the ONLY thing used, and that locks entire groups of people out of insurance in an insurance-mandatory state.

Are you just responding to that one single sentence in my post because you wanted to make the point about how other correlations in terms of insurance risk aren't universally true for all members of the category? Because otherwise I can't really figure out what your post had to do with mine.

@crnk: You're clouding the data by tying credit score to unrelated variables. Show me why your mother is a better driver than another 50 year old mother with a spotless record who's carrying lots of credit card debt, and then I'll be convinced.

why not use credit score? if we're going to eliminate this practice then we also have to eliminate the good student discount, male-female difference in cost, age difference in cost, and so on. you know, because of the disparities.

credit score is unique in that is it a direct result of the actions you take throughout life. it's not dependent upon income. you can make 10k a year and still have a great credit score. likewise, you can make 150k a year and have a shitty credit score. credit scores are a measure of responsibility. now everyone can build their credit score by paying their bills on time, all the time. people that don't follow this simple rule are punished in MULTIPLE ways, not just higher insurance premiums. these folk get higher interest rates on everything.

it's stupid to whine about this practice. it works and gives everyone an equal chance to succeed or fail.

@target_veteran: Exactly my point. Why should my risk pool be expanded to include others who are demonstrably less responsible (and therefore more likely to incur a claim)?

@Beerad: I'm not necessarily not in disagreement with you, it's just that statistics (in this case) are over-manipulated by the people in the "best statistical manipulation line of business." Kinda' like the fox guarding the coop. (Bad analogy, but lets indulge the populas for discussion)

Using their "proven statistical formula" one winds up painting some good drivers as bad risks simply because of issues not at all related to driving skill and/or experience.

And here in Mass, you CANT shop around: the rates are set bu the state insurance commissioner, although that will change next year with "limited" competitive bidding, and a one-year hold on possible use of credit-score factoring.

Oh, by the way, our jobless rate in Mass is up again here, so I guess when the next 1000 jobs go out-of-state, all our car ins rates should go up too....

@forever_knight:

"you can make 10k a year and still have a great credit score"

.....okay, maybe you could if you lived with your parents/squatted, are under 18, living off Ramen, not buying a single material object in a year, not having to pay for gas or public transit, were in perfect health/had insurance that covered EVERY claim....yeah, then I guess you could live on 10K/yr and have a great credit score.

Do you know lots of people who are able to do this?

@ancientsociety: i know one person: i lived off of 15k a year. in an expensive part of the country too. sometimes i had to pay interest on my credit card because i didn't have the money to pay it off that month. but i ALWAYS PAID AT LEAST THE MINIMUM.

notice i didn't say you can live extremely comfortably on that amount of money. you can, however, pay or make payments for the shit you decided to buy. it's all about choices and responsibility!

@Eyebrows McGee: Easy there, McGee. Yes, I quoted your line to emphasize my point. And I noticed your issue about the "only" factor in consideration was credit score, but that didn't seem to be what the articles were about and I doubt there's an insurance company that would be in business long ONLY using credit score -- as many people have pointed out, there's too many other variables that have an effect. Anyway, nothing personal.

@ancientsociety: It's pretty true that a high credit score does not require a sky-high income to develop. Just get a credit card or two, make some normal charges every month (that you'd be paying for anyway, like groceries and utilities) and pay them off in full. Give it a few years and you're in pretty good shape. Fiscal responsibility ftw.