Critics claim credit scoring penalizes poor, minorities

Associated Press

A look at the growing use of credit scoring by auto insurers, which increasingly use the ratings to set individual insurance rates:

• Credit scoring: Insurance risk score based on credit report information gathered by the three major credit bureaus — Equifax, Experian and Trans Union.

• Based on: Outstanding debt; length of credit history; late payments, collections, bankruptcies; new applications for credit; types of credit in use.

• History: Fair, Isaac & Co. developed the most widely used form of credit scores. FICO provides scores for both insurance risk and credit risk.

• Who uses it: Majority of auto insurers.

• Why: Effective and cost-efficient way of assessing risk. Insurers say statistics show that drivers who pay bills late or have a history of financial instability are more likely to be in car accidents.

• What critics say: No definitive evidence of link between financial responsibility and good driving. Likely to penalize poor and minorities. Penalizes consumers with short credit histories. Could prompt more to drive without insurance.

• How to learn your credit score: Individual credit reports, FICO credit scores and explanations available for $12.95 at www.myfico.com and www.equifax.com.

• How to improve it: Pay your bills on time, pay down credit card balances, avoid new debt.