  Lefty2 Member Username: Lefty2 Post Number: 1828 Registered: 07-2007 |
State regulators can prohibit insurers from using customers' credit scores to determine home and auto insurance rates, a practice critics says arbitrarily jacks up premiums for those with poor credit histories, the Michigan Court of Appeals has decided. This means that a credit score will not affect your insurance rates. About time. http://www.detroitnews.com/app s/pbcs.dll/article?AID=/200808 23/BIZ01/808230321/1001/BIZ | ||
Ray1936 Member Username: Ray1936 Post Number: 3543 Registered: 01-2005 |
"if the ruling is not overturned it could drive up rates for those who have received insurance policy discounts because of a good credit score." Well, that'd be me. | ||
Olddetroiter Member Username: Olddetroiter Post Number: 1265 Registered: 04-2008 |
Another victory for the deadbeats | ||
Lilpup Member Username: Lilpup Post Number: 4939 Registered: 06-2004 |
No, another victory for those who don't file any or many insurance claims. Credit history should have nothing to do with insurance rates. | ||
Craig Member Username: Craig Post Number: 991 Registered: 02-2007 |
You would probably be surprised by the range of consumer behaviors that correlate with credit scores. They are exceptional predictors of the likelihood to buy and follow through with payments for things as varied as cell phone contracts and new vehicle service plans. Intentionally blinding the insurance companies will cripple their ability to accurately predict future behavior. Consequently they'll under-rate the risk for many and then have to make good on their losses by redistributing the pain. A lot of good, low-risk people are going to see premiums jump due to this misguided homage to the belief that all are good and trustworthy. | ||
Lilpup Member Username: Lilpup Post Number: 4940 Registered: 06-2004 |
Insurance rates should be dependent on claim histories and the nature of what's being insured, not one's payment habits. Insurance coverage for non-payment is easily canceled. Low risk people shouldn't be penalized for setbacks experienced during times of financial hardship, especially with what's going on in today's economy. | ||
Perfectgentleman Member Username: Perfectgentleman Post Number: 9003 Registered: 03-2006 |
I agree with Lilpup, there are lots of good, dependable folks who are safe drivers that have had a few credit problems. Credit reports aren't even that accurate and getting things fixed takes months. This trend of using credit reports in regard to insurance rates and employment is a bad thing, unless the job relates to financial matters. | ||
Dougw Member Username: Dougw Post Number: 2135 Registered: 11-2003 |
But wait, relying solely on credit scores worked so well for the mortgage industry the last few years! (Whoops, maybe not, see the Alt-A disaster.) Credit scores do have their place, but this doesn't seem like a good use for them. | ||
Dianeinaustin Member Username: Dianeinaustin Post Number: 93 Registered: 02-2008 |
i agree w lilpup and pg. | ||
Detroitplanner Member Username: Detroitplanner Post Number: 1835 Registered: 04-2006 |
Boo!••• Last year I switched to the credit system and saved $1,500 a year between the house and the car. I don't have any accidents. I agree with OD, score one for the deadbeats. Not awarding those with good credit will keep the city full of foreclosed homes and credit criminals. | ||
Perfectgentleman Member Username: Perfectgentleman Post Number: 9013 Registered: 03-2006 |
That is funny, I know a several people with great credit who also drive drunk regularly. This is just another attempt to screw people. People with good credit are not being rewarded, the others are being penalized. | ||
Rid0617 Member Username: Rid0617 Post Number: 267 Registered: 03-2008 |
Guess I'm a good example. Luckily I have been with my insurance company since 1995 and no claims. After 14 years of marriage my ex-wife decided she was tired of being a wife and mother and had to go find herself. Only problem she found herself after tapping my credit cards out. I refused to pay the $10,000+ she run up. Divorce papers said she was to pay it. She hasn't and God knows where she is. Why should I pay more for insurance because of a credit score? | ||
Craig Member Username: Craig Post Number: 992 Registered: 02-2007 |
DougW - point taken, but the lenders who slipped into upside down did so by ignoring the lesson of the numbers. Think about the scores as you might the nutritional info on food: many dumb bastards get fat when the forecast is right there on the side of the package. Personally, I'd like to be judged and charged in accordance with my current and past behaviors, but the scores provide an accurate analytic shortcut. To this end I say use 'em. | ||
Craig Member Username: Craig Post Number: 993 Registered: 02-2007 |
Something else about the alleged fallacies of credit scores and lenders who've gone tilt... lenders (and marketers) are not uniform in their methods for interpreting these scores. Among lenders the concept is known as "risk" and the tolerance for risk varies wildly among the players. To insiders it's clear that those who lowered their standards are also the banks facing insolvency. | ||
Thejesus Member Username: Thejesus Post Number: 298 Registered: 06-2008 |
I think the title of the article may be a little misleading. If I'm reading it correctly, nothing was "struck down". It just says that state regulators can, if they so choose, prohibit insurance companies from using credit scores to determine insurance rates. This would mean that if the next governor is friendly with insurance companies (can you say Dick DeVos?), then that administration could just as easily choose to allow insurance companies to continue this practice of using credit scoring. Disclaimer: I haven't read the Court of Appeals opinion and am going by the information in the news article. | ||
Dougw Member Username: Dougw Post Number: 2140 Registered: 11-2003 |
Fair points, Craig. The main problem with Alt-A mortgages was that they relied almost solely on credit score, which made it easy to commit fraud or otherwise game the system. As one of several inputs for a loan, credit scores are useful. quote: Absolutely. Unfortunately that's about half of all the lenders, E.g. Countrywide, Washington Mutual, IndyMac, New Century, GMAC, Fremont, Accredited, Ameriquest, etc, etc... it was a systemic problem. | ||
Craig Member Username: Craig Post Number: 994 Registered: 02-2007 |
...and to that end I say "f" them. In my business I know what you're doing next -maybe even before you know it yourself- based upon a credit score. If "they" were not smart enough to believe what they knew to be true then it should be their problem. | ||
Dougw Member Username: Dougw Post Number: 2143 Registered: 11-2003 |
Agreed about the "f" them. We need to let them fail if we ever want to clean things up. | ||
Iseries840 Member Username: Iseries840 Post Number: 831 Registered: 08-2005 |
Why don't they use DNA to determine whether a person will file claims. | ||
Sumas Member Username: Sumas Post Number: 233 Registered: 01-2008 |
I have a bad credit history because I have no history. Got rid off all credit cards in 1988. No loans, no debt = no credit history = bad credit. I have had no moving vio;ations since 1985. Why should I pay more when I am the most debt free person in Detroit? Am I a deadbeat? I don't think so. | ||
Craig Member Username: Craig Post Number: 1001 Registered: 02-2007 |
Deadbeat probably isn't the right term, but I'll ask: do you own a home? Have utilities registered in your name? Have/had a student loan? What was your payment history with these? I have some grim news for the free-spirits who deliberately "live off of the grid"; there are hundreds of millions of Americans who have and pay bills. Your lifestyles place you far outside of the mainstream, and commerce is geared to serve the mainstream. A degree of pleasure may come with the knowledge that you're not conforming, but your deliberate action comes at the price of the system's "mis-trust" of you borne of the fact that it lacks data needed to establish that you are a good risk. So, Sumas, you're far out on the fringe. I feel that you should be paying more until you're able to demonstrate that you're not reckless with money. A good place to start is with a utility bill. Pay it on time and your scores will begin to rise. | ||
Detroitplanner Member Username: Detroitplanner Post Number: 1852 Registered: 04-2006 |
I would agree with Craig, get some credit. Note that getting credit is not the same as paying interest. Only put on your card what you can afford to pay off every month. The sad reality is living with no credit history will seriously impact your ability to negotiate anything. Should you choose to buy a house, you will be saddled with the highest of mortgage rates, and this could result in paying out tens of thousands of extra dollars over the life of the loan. In addition, many employers will not hire people if they do not show a responsible credit history. This could put you at a disadvantage in the employment market. Should you go to rent a car for a weekend, the rental company will put a hold on your debit card. If you have any checks you are waiting to clear, and lets say you don't have over $20,000 in the account, you will bounce those checks at anywhere from $25-$45 a pop. I don't know about you, but money looks better in my pocket than in the pocket of the banks. Just remember that credit is a tool that needs to be managed effectively. It rewards those who use it responsibly and penalizes those who don't. I urge you to do some research into credit. Places such as the yahoo finance page are excellent places to start. They regularly publish collumns by Ben Stien and Suze Orman, as well as more heavy hitter economists. | ||
Sstashmoo Member Username: Sstashmoo Post Number: 2286 Registered: 02-2007 |
Ok now on to abolishing the unlawful, invasive system of credit scoring. We live in a free society, not to be monitored by private organizations. | ||
Craig Member Username: Craig Post Number: 1002 Registered: 02-2007 |
Looks like we're at an impasse: I believe that biz needs the scores to economically assess risk and price policies. | ||
Rb336 Member Username: Rb336 Post Number: 7385 Registered: 02-2007 |
there is NO correlation between driving ability and credit scores. NO correlation between a low credit score and the likelihood of getting in an accident. There is NO reason the insurance swindlers should look at credit scores. it is a pay-as-you-go system, not a loan | ||
Barebain Member Username: Barebain Post Number: 20 Registered: 02-2006 |
No, but there is a correlation between the very reasonable insurance premiums I've obtained (living in Detroit) because of my good credit score. I also am a good driver with few claims, but could not get good insurance premiums until finding a company that used credit scores as a measure. People with high credit scores will be penalized if this takes hold. I do not think that insurance rates will decrease for those with low credit scores. Insurance companies want as much of our money as they can get, and until a higher body tells them how to justly charge their customers (not, simply, how not to charge their customers), we will all continue to be penalized on this front. | ||
Jita1 Member Username: Jita1 Post Number: 59 Registered: 08-2008 |
I never thought it was fair to use a person's credit history for determining insurance rates. They already penalize you if you live in certain areas. Before we got married, my wife lived on the west side near Central High and was paying about $4k a year for car insurance (1 Chrysler and 1 driver). She had excellent credit and a good driving record. My insurance rates were considerably lower, with not so great credit but I lived in a different part of the city. Still too high though. That's the main reason we moved out of the city. We now pay about half of what we paid before. | ||
Sean_of_detroit Member Username: Sean_of_detroit Post Number: 1627 Registered: 03-2008 |
Now we just need to stop basing eligibility for employment on credit score... | ||
Southwestmap Member Username: Southwestmap Post Number: 1075 Registered: 01-2005 |
Some states with credit scoring have the scores adjusted to exclude unpaid medical bill collection actions. I know that unpaid medical bills that went to collection negatively and expensively affected my credit score and insurance rates. Not that I couldn't pay the bills - I just could not comprehend the co-pay changes and intracacies and thought that eventually Blue cross and the hospital would figure it all out. Bad mistake. Hospital rushed to collections. Car insurance went up. | ||
Sstashmoo Member Username: Sstashmoo Post Number: 2291 Registered: 02-2007 |
"Hospital rushed to collections." Of course they did. They use credit scores and the penalty of negative reporting to extort money from folks whether they owe it or not. It isn't just hospitals, the utilities phone etc do the same. | ||
Sean_of_detroit Member Username: Sean_of_detroit Post Number: 1629 Registered: 03-2008 |
But we have gripe sites... Sigh... | ||
Craig Member Username: Craig Post Number: 1004 Registered: 02-2007 |
RB - you're wrong about the presence of correlation. The numbers are there, but I'm not able say "are too" without giving up proprietary info. Guess I'll ask for what I'm not able to give: do you have evidence or know of a public study refuting my assertion? | ||
Urbanfisherman Member Username: Urbanfisherman Post Number: 15 Registered: 07-2008 |
quote: It is very useful to use credit scores to weed out the risky potential employees that would have a greater likelihood of stealing from the business. | ||
Trstar Member Username: Trstar Post Number: 30 Registered: 05-2007 |
for the next arbitrary measurement for car insurance,instead of driving history, lets use 3rd grade math scores, shoe size, and the number of fairies that can dance on a pin. | ||
Craig Member Username: Craig Post Number: 1007 Registered: 02-2007 |
Trstar - you are wasting your considerable talent and insight by posting on DY. Run for office and lead the people out of the wilderness. | ||
Lefty2 Member Username: Lefty2 Post Number: 1914 Registered: 07-2007 |
http://www.businessweek.com/ma gazine/content/02_04/b3767072. htm They are notoriously incorrect with many errors. | ||
Craig Member Username: Craig Post Number: 1008 Registered: 02-2007 |
Did we read the same article? What in that piece supports the position that credit scores do not correlate with risk or that credit scores inaccurately reflect a consumer's credit-worthiness? Argue that use of credit scores constitutes a social injustice (I don't believe so), but I've read nothing on this thread that credibly undermines the predictive power of credit scores. An appeal: anyone on the other side of this issue who has credentials? Market research? Analyst? Underwriter? I do. "You" weigh in and we can move this discussion up a notch. | ||
Craig Member Username: Craig Post Number: 1011 Registered: 02-2007 |
bump | ||
Buzzman0077 Member Username: Buzzman0077 Post Number: 201 Registered: 11-2006 |
My father works for one of the largest insurers in the state. He says they have multiple studies which show that low credit score holders tend to file more claims, as well as more fraudulent claims. That's why they use credit scores. I don't like that they do, since I am a very poor student whose score is not the best I pay the price. | ||
Cargo_kitty Member Username: Cargo_kitty Post Number: 11 Registered: 07-2008 |
I think insurance should be based on what you're insuring and your history of having insurance. Those who only get insurance to get license plates or to get the house or apartment should pay the higher rate. People who file frivilous claims should pay more. Some people will pay the insurance before the credit card. I disagree that credit scores correlate to number of claims filed. I have a friend who's husband ruined her credit during a very nasty divorce. She has been insured by the same insurance company for over 30 years, NEVER had a claim and yet her insurance went up when her credit score dropped. Where's the fairness in that? | ||
Detroitplanner Member Username: Detroitplanner Post Number: 1861 Registered: 04-2006 |
Here is an excellent article about the importance of establishing credit while young and how to go about doing so: http://finance.yahoo.com/exper t/article/generationdebt/10370 8?count=30&start=6#dtk-cmtscnt | ||
Lefty2 Member Username: Lefty2 Post Number: 1918 Registered: 07-2007 |
Credit scores do predict an ability (or not) to pay to a high degree. The likely hood of a 600 score may be less timely or not at all than a 760 score. But how does that affect their driving skills? Then if someone files a false claim keep it on their record and use it against them. If someone is struggling to pay their bill because for whatever reason, why increase the cost to them, this will only encourage them not getting insurance and therefore passing the cost onto others. Please read the last paragraph. Well I will put it here. Per Business Week article. " Insurance regulators say what makes them particularly suspicious is insurers' refusal to explain how they use credit histories, which are notoriously inaccurate and hard to interpret. Back in 1980, Aetna Inc.--which sold its property and casualty business in 1996--admitted past discrimination with ads showing a man eating crow. Given the groundswell against credit scoring, other insurers may soon see the same dish on the menu." | ||
Craig Member Username: Craig Post Number: 1013 Registered: 02-2007 |
I believe that a part of the problem is that the article and paragraph wer written by a journalist for an audience of generalists. "Notoriously inaccurate and hard to interpret". Again, I cannot take you to work and show you what I see, but with my eyes I see the results of simple correlation analyses and multivariate logistic regressions which connect credit scores with likelihood to file claims, buy supplemental life insurance, respond to offers to purchase new vehicles, etc. Sometimes the correlations are not so strong, but the credit score is as close as market researchers and strategic planners have to a magic bullet. Any analyst who deliberately ignores credit scores while constructing a predictive model is likely a fool. If this is you, then never send a resume to me or any of the banks or national marketers. The article mentions discrimination but does not provide real detail. Discrimination is disadvantageous pricing for blacks, women, etc. solely because they are black or female. Something that laypeople often don't completely grasp, though, is the science of probability. Empirical data and scientifically proven methods determine what is probable, and it's flat-earth types who are challenged to accept statistically-derived findings and conclusions. The law is clear: no pricing based upon ethnicity, gender, etc. And the law is well-informed by commonly held standards of social justice. Methods based in science which are color-blind are, in my opinion, just, valid, and useful. "Too many brothers falling into sub-prime credit range" is a social issue and not relevant to the question of whether low scores are or are not strongly correlated with unacceptably high risk. | ||
Lefty2 Member Username: Lefty2 Post Number: 2153 Registered: 07-2007 |
If you were a judge would you give someone a longer or highest prison term possible who had a low credit score. Therefore according to your stats would have a higher beta of crime propensity. | ||
Frankg Member Username: Frankg Post Number: 623 Registered: 08-2007 |
While I can understand Craig's point about the predictive value of credit scores, there are also problems. If your credit score has inaccuracies, that will affect your insurance rates. It may take several months to correct a mistake, and by then you have been paying higher insurance rates. And most people do not have knowledge of their instantaneous credit scores. And sometimes credit scores can be unduly influenced by a simple credit application when the credit isn't even utilized. For me, though, the biggest problem I have is the method used to calculate credit scores. The formulas are proprietary and unavailable for public scrutiny. Insurance is regulated by the state, but credit scores are not. Thus, there is a huge loophole that is not regulated, defeating the purpose of regulation in the first place. | ||
Savannah Member Username: Savannah Post Number: 70 Registered: 02-2008 |
I wish there was some way of predicting the probability of someone causing an auto accident. Hmm, if only insurance companies had some sort of record of one's driving history or motor vehicle record. We need to think about this. If only there were some way... | ||
Mikeg Member Username: Mikeg Post Number: 1850 Registered: 12-2005 |
If only there was some way to assign responsibility for a so-called "accident". Maybe that way the person who caused it would take on the financial responsibility for everyone involved.... If only there was a way to prevent uninsured vehicles from ever being driven on public streets.... If only there was some way to remind people of the fact that driving a car is a privilege extended by the government, not a constitutional right.... If only the government did a better job of managing the extension of that privilege.... If only insurers had the power to fully discriminate in their policy-making similar to the unfettered power the government has to discriminate when awarding and revoking drivers licenses.... | ||
Gumby Member Username: Gumby Post Number: 1826 Registered: 11-2003 |
Doesn't matter if the correlation is there. Correlation should not be used to determine causation. | ||
Catman_dude Member Username: Catman_dude Post Number: 305 Registered: 03-2006 |
Life was simpler before insurance companies started using credit scores. Once they started using credit scores, those hurricanes, flooding, and tornados increased and the billions of dollars of claims did too. What goes around, comes around. Natural disasters will stop once insurance companies stop using credit scores. | ||
Savannah Member Username: Savannah Post Number: 71 Registered: 02-2008 |
only there was some way to assign responsibility for a so-called "accident". Maybe that way the person who caused it would take on the financial responsibility for everyone involved.... If only there was a way to prevent uninsured vehicles from ever being driven on public streets.... If only there was some way to remind people of the fact that driving a car is a privilege extended by the government, not a constitutional right.... If only the government did a better job of managing the extension of that privilege.... Does this cost the insurance companies money? | ||
Mikeg Member Username: Mikeg Post Number: 1857 Registered: 12-2005 |
My point is that if the government did a better job of managing their extension of the driving privilege and got the 20% of drivers who cause 80% of the "accidents" off the road, it would cost the responsible drivers a hell of a lot less money to insure their vehicles. Instead the government focuses on only the most flagrant moving violators and leaves the rest of us to the mercy of too many incompetent drivers who could never get or keep a license in most other countries of the world. | ||
Frankg Member Username: Frankg Post Number: 638 Registered: 08-2007 |
I think Mike has a point, and if we had better mass transit systems, government would be more likely to revoke driver's licenses. It becomes problematic to revoke someone's driver's license though. What happens to a family when the wage-earner loses a driver's license? Should children have to pay for the mistakes of their parents? Well, at some level of incompetence, yes. At other levels, maybe not. If there were better mass transit systems though, this wouldn't be a problem. Gumby makes the point about correlation not meaning causation. In the case of the insurance scores predicting insurance claims, I believe there is causation. We have temporal precedence (an insurance score at time 1 is correlated with insurance claims at time 2), and concomitant variation (when credit scores vary, we see variation in insurance claims). There is a fairly weak theoretical causal link though, apparently that whatever causes financial instability also causes insurance claims? This is called a spurious correlation. Without fully understanding and explicating the theoretical causal mechanism, the model is suspect. |
