Nancy Kaffer Detroit Free Press
Published 6:00 AM EDT Mar 22, 2019
My credit score is a mystery to me.
It is inexplicably bad, even though the overwhelming majority of things I am obligated to pay — rent, bills, auto insurance premiums — I pay on time. The credit rating bureau Experian says I’ve made five late payments over the life of my credit history, although it doesn’t tell me what payments, or when. I don’t have a lot of debt, which Experian says isn’t good, and the kinds of debt I have, Experian also doesn’t like. Because my credit score is bad, I pay more for anything with an interest rate: a car lease, a car loan, a mortgage, really, credit of any kind.
And car insurance.
Thanks to the way the auto insurance industry calculates an opaque metric called the “insurance score,” folks with bad credit (like me) pay more for car insurance. Not because we’re worse drivers, but because auto insurers say we’re more likely to file claims — in other words, we’re more likely to ask the insurance industry to make good on the service we’ve paid them to provide, which seems contrary to the “spreading risk around” concept insurance is premised on.
U.S. Rep. Rashida Tlaib, D-Detroit, wants to change that.
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Tlaib has introduced a bill that would effectively end the practice by blocking credit ratings bureaus like Experian, TransUnion and Equifax from providing credit scores or other consumer information to insurers.
“Credit scores should not be used for this,” she told the Free Press this week, adding that using credit scores to set auto insurance rates is akin to red-lining, the practice of overcharging or excluding certain customers based on geography as a stand-in for race.
Detroit has the highest auto insurance rates in the country, and the congresswoman notes that the 13th Congressional District she represents has high rates of poverty. When folks can’t obtain affordable insurance, it makes them less financially stable. Using credit scores to set insurance rates, Tlaib says, places an undue burden on people who, like many of her constituents, don’t have access to credit.
A 2015 Consumer Reports investigation found while the auto insurers say that “insurance scores” are derived from factors including customers’ credit scores and driving record (and other factors that the companies are not required to disclose, your credit score could be the metric with the most impact on your auto insurance rates.
Sample policy quotes obtained by Consumer Reports found that a customer with a flawless driving record but a middling credit score was charged almost double the rate increase handed out to a driver with a recent moving violation.
And because those costs are based on hypothetical events, not a driver’s actual record, using credit scores to set rates, Consumer Reports wrote, “effectively forces customers to dig deeper into their pockets to pay for accidents that haven’t happened and may never happen.”
In other words, they’re charging you in advance for a payout you may never ask for.
Three states bar the use of credit scores to set insurance rates, charging customers instead based on factors like driving record and average miles driven, Consumer Reports found.
The insurance industry, of course, opposes Tlaib’s bill, saying that insurance regulation should be left to the states; Tlaib is proposing regulation of the credit bureaus, the purview of the federal government. Some insurers claim they don’t charge higher rates for folks with bad credit, but offer discounts to customers with good credit (this is what we call a distinction without a difference), or have threatened that such a restriction would lead to rate increases for everyone.
I get why, for folks with good credit, this doesn’t seem like a big deal. If you have good credit, people like me seem irresponsible. Risky.
And I know I’m not the constituent Tlaib has in mind; I’m a college-educated, middle-class white lady. I can tell you firsthand that the system is arbitrary and unfair. I’m a good driver. So may be a woman living in poverty with even worse credit than mine.
Neither of us should be reduced to a credit score.
Nancy Kaffer is a Free Press columnist. Contrary to what Experian would like you to believe, she pays her bills on time. Contact: [email protected]
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