Friday, November 9, 2007

Credit Scores: Guilty Before Proven Innocent

Imagine. A straight “A” student with a stellar performance record in and outside of the classroom applies to college -- and gets rejected. Why? Because she’s African American and statistics show blacks tend to fairly poorly in college. Outrageous?

Not according to the auto insurance industry, which would have us believe people are guilty despite documented evidence of their innocence. Their rationale? Low numbers on a credit score.

Charging drivers higher insurance premiums -- for no reason other than a spotty credit history -- is not only unfair, but also immoral. Why should I, with zero moving violations against my record, and no accidents or other claims filed in more than 20 years, pay for my neighbors’ carelessness and aggressive driving – simply because his credit is better than mine?

The car insurance/credit score debate in Delaware opens a Pandora’s Box about issues surrounding the finance industry. I’ve personally spent hours, days, even months cleaning up factual errors in my own report. Fixing reporting errors and fighting the three credit bureaus alone could be a full time job.

To point out just how troubling the trend, I personally know several fine and otherwise upstanding people who suddenly find themselves in a chokehold because of credit score errors and the horrors of trying to fix them.

To be honest, I’m still baffled at why a friend who wrote of all her debt and declared bankruptcy has a better score than mine, when I decided to pay off my creditors instead. Isn’t that what banks what? People who pay their debts? Apparently not according to our scores.

And just what does any of this have to do with driving? My same friend has filed several car insurance claims in the ten years I’ve known her. I haven’t had one. She lives in a relatively high crime area. I don’t. But my insurance rates should be higher?

The insurance industry’s own arguments for the practice are the most troubling. “The score can’t predict accidents,” admits Jeff Junkas, a spokesperson for the association that represents insurance companies nationwide. “They only indicate the likelihood of a claim,” he explains.

When pushed about the fairness of the practice: “We don’t know why it works, but it does work,” he quips, as if the ends really justify the means.

Using his argument, we should charge women in the workplace higher health insurance premiums. Why? While we can’t predict they’ll get pregnant, we do know there’s a likelihood sometime during their career they’ll have kids. Consequently they will strain health benefits they’ll not only need prenatal care but also expect maternity leave and ultimately have higher incidences of absenteeism (to care for sick offspring, among other things).

What’s next? Charging higher health insurance premiums to employees over 50? Denying them completely when they turn 60?

True, it’s accepted practice to charge more for life insurance as buyers age. But even here, we don’t arbitrarily treat every senior the same way. Buying a policy early in life entitles the purchaser to the same premium as someone years younger.

I don’t know about you, but to me there’s something sinister about punishing people in advance for things they haven’t done.

1 comment:

Al said...

Followed your link from the NJ. Good reading.....we're not supposed to stereotype people according to their race, sexual preference, religion, etc., ad nauseum. However, the corporations do it all the time. Your zip code also helps set your car insurance rate. And get this, I had young drivers in my household and had to pay their insurance whether they drove my car or not. Even if they have their own insurance you still have to pay an add-on because of the possibility they might drive your car. As far as credit scoring is concerned all I can say is don't have any long term medical problems or you will see your score crash and burn. Have a good day!