The Questionable Logic of Insurance Companies Credit Scoring

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Carlos Kirby
Updated on Apr 27, 2022 · 3 min read
For decades, insurance companies have been using
credit scores
to determine customers’ coverage and rates. Those with lower credit scores have been universally penalized with high rates and poor coverage, at the assumption they are riskier and less responsible. 
Those with high credit scores, inversely, are also offered lower rates on their insurance and better coverage. This helps them avoid financial hardship in the future event of an auto accident or other damage.
According to
, since the 1990s, the number of insurers using FICO credit scoring has exploded. 95% of all home and auto insurers use credit scores as a measure for rates and coverage. However, this practice is
being outlawed
by an increasing number of states.
As we peel back how insurance is allotted, it becomes increasingly clear that insurance credit-scoring logic is both flawed and actively reinforces systemic discrimination against targeted minority groups.
Have you wondered how insurance companies use credit scores to determine rates?

Your "Auto Credit Score" is not unique

The insurance industry states they use a "special" credit score that reflects more on driving and less on finances. This is barely true. They utilize a FICO Credit-based Insurance Score, and it does weigh the FICO factors slightly differently, but it doesn’t make much of a difference. 
The insurance score rates your past payment history slightly higher and your types of credit use slightly lower. Other than that, the scores are identical. Customers with low credit scores from inconvenient or even tragic past circumstances can also expect
unfairly high insurance rates
in addition to current financial troubles.

Credit scores do not reflect your driving ability

The first and key flaw in the logic of using credit scores for auto insurance is that your payment history
doesn't reflect
your driving ability.
In the 1990s, insurance providers statistically correlated that people with high credit scores filed fewer insurance claims. This simplistic observation blew out of proportion without examining why that statistic was true. 
People with higher credit scores tend to be wealthier, drive more expensive cars on isolated neighborhood streets, and they can afford not to report the occasional fender-bender for the sake of their insurance rate.
Conversely, people with low credit scores are just as likely to be skilled and careful drivers. Having a low credit score can come from financial struggles to pay bills on time, a high level of personal debt, or actively pursuing new credit (for example: buying a car or house). 

Why are credit-based insurance rates a discriminatory practice?

Insurers are now finally facing heat for discriminatory rates, a trend that was long suspected but now more easily proven
as we examine
the credit scoring method for rates.
The idea of a person's credit score supposes that your own personal financial behavior should result in a high or low score. Pay your bills on time, we're told, and you'll get a high credit score. Paying rent and utilities is rarely included (only credit and debit payments) so a person's reliability with their regular bills is never even accounted for. 
In truth, credit scores act to reinforce economic privilege and poverty being manufactured in other sectors. Families who are already marginalized can't afford to financially rescue their children from early mistakes, as wealthy parents can.
Raising the rates on families with low credit scores makes safe, responsible driving more expensive. This perpetuates the financial disadvantage already created without actually considering stable lifestyle factors, like rent and utility payments or even the practicality of a debt-free (and credit-free) lifestyle.
The first step for minority and marginalized populations is fair access to insurance, that safety net that covers you financially when accidents or disasters happen. Explore your options with
and find the best rate for your needs.

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