Critics Question the Practice of Using Credit Scores to Set Auto Premiums

In today’s issue of The Boston Globe, columnist Michelle Singletary, a regular contributor to the Washington Post, chimes in on the current controversy making headlines in the insurance industry. In the aftermath of a high-profile report recently released by the Federal Trade Commission — which many critics feel sides with the insurance industry — numerous consumer groups have loudly voiced their concerns with the way insurance companies use credit scores to determine whether — and how frequently — someone will file a claim. The consumer groups think that this process unfairly hurts African-Americans and Hispanics.

After extensive research using industry data and public comment, the FTC report concluded that “credit scores accurately predict the number of claims consumers file and the cost of these claims.” However, several prominent consumer interest groups — including the Center for Economic Justice, the Consumer Federation of America, and the National Fair Housing Alliance — strongly disagree.

From Ms. Singletary’s article:

"The FTC's approach to collecting data for the analysis is like the federal government trying to do a study on the health impacts of tobacco use with data selected by tobacco companies for the study," said Allen Fishbein of the Consumer Federation of America.

Commissioner Jon Leibowitz, who voted to release the report, said that although the analysis appears to find insurance scoring does predict the risk of insurance claims, "the differences in credit-based insurance scores across racial and ethnic groups are a disturbing reminder that our society is still not race blind, and that vestiges of our history of discrimination remain ever-present."

The insurance industry, however, was pleased with the FTC report.

"We believe scores reduce subsidization of bad risks by good ones, meaning most consumers pay less for insurance," said David Snyder, vice president and assistant general counsel for the American Insurance Association.”

For the time being, insurance companies will continue to monitor your credit score as a way to predict your future liability. Unless you take the appropriate measures to establish and maintain a high credit score, you will be forced to pay higher insurance rates, period! This is one of the many reasons why having a strong credit history is so important. A high credit score, which will help you lower your insurance rates dramatically, will save you thousands of dollars in the long run.

Where does your credit score stand right now? Click here to find out. You should definitely know where your credit stands before you apply for a credit card, loan, or mortgage, but in all honesty, you need to know what your credit score is at all times. By frequently monitoring your credit, you can help fix a poor credit score and keep an eye on potential threats of identity theft at the same time.

Elsewhere in the world of credit: Arabia.com is reporting that a poor credit score could hurt your chances of landing a job. In fact, many employers are “now looking at an applicant’s credit report for hiring purposes.”

I will explore this topic in more detail in a future post.

On another note, you may have noticed a few changes to the blog over the past few days. Feel free to utilize several of the new content features on the right-hand side of the site — including a brand-new feature that provides you with all of the latest information on “credit scores” from Google News.

And please be sure to vote in our credit poll. After you vote, see if your assessment of your current credit standing is correct by viewing a FREE Triple Credit Report, courtesy of Privacy Matters.

To contact the blog, send an email to creditreportandscores@gmail.com.