Should Car Insurance Rates Be Based On Your Credit Score?

Chris Walters — Fri, 05 Oct 2007 10:30:28 EDT

For a decade now, all the major auto insurers have used a customer's credit rating to some degree in determining premiums. They claim that it results in lower rates for "most" customers, and that the data prove that people with lower credit scores make more claims and for higher amounts. The FTC released a report this summer that validated the practice—but also confirmed an unpleasant truth critics have been saying for years: because a higher percentage of Hispanics and African-Americans have low credit scores, there's a good chance they're disproportionately affected.

Another article uses a side-by-side comparison that really shows the disparity: "Using credit scores is likely to mean that 64 percent of African Americans, 53 percent of Hispanics, 38 percent of non-Hispanic whites and 34 percent of Asians would pay higher premiums the FTC said."

The practice was questioned at a House hearing on Tuesday, although it's not clear whether anything useful was accomplished—the news reports have the usual routine of partisan soundbites that fall predictably on either side of the issue. California, Hawaii, Massachusetts and New Jersey have banned credit-based pricing, while many other states have passed laws that limit the extent to which insurers can rely on it.

"Credit-Insurance Link Debated" [Associated Press]

RELATED
"Congress looks into credit based auto insurance rates" [McClatchy]
"Caution! The secret score behind your auto insurance" [Consumer Reports]
(Photo: Getty)

The News: Hungover, Hating Self, World

popkin — Tue, 30 May 2006 12:34:13 EDT

• Virgin Mobile to unleash SugarMomma program, allowing subscribers to earn free talk time by watching ads. The highest users will get a free apartment and clothes in exchange for giving massages to their cellphone and showing up with it to fancy dress balls. [NYT]
• Cellphone companies are targetting Hispanics. Based on several statistically backed sweeping generalizations, the companies consider Hispanics 'ideal customers.' [NYT]
• Inflation rose in April while consumer confidence fell in May from its 4-year high. Sad. [Tribune]
• File under "Duh," kids exposed to more pollution while in the womb end up more stupid. [New York Post
• CMP Media trying to >prevent anyone from using the term Web 2.0. God, at least somebody is. [NYT]

Consumerist: Hispanics

Should Car Insurance Rates Be Based On Your Credit Score?

The News: Hungover, Hating Self, World