Critics claim credit scoring penalizes poor, minorities
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 improve it: Pay your bills on time, pay down credit card balances, avoid new debt.