Released: August 02, 2007

Car insurance and your credit

Source: Michelle Singletary, Washington Post (Free Registration)

Using credit scores in determining automobile insurance eligibility and premiums is a standard industry practice. For years, insurers have maintained that a person’s scores, originally intended to measure creditworthiness, are also a predictor of whether—and how often—someone will file an auto insurance claim.

And for years, consumer groups have urged state legislatures and the federal government to see the flaws in that practice. Consumer advocates say using credit scores to set insurance rates unfairly hurts African Americans and Hispanics because those groups tend to have lower credit scores and thus end up paying more for their auto insurance. They also complain that errors in credit files can result in lower scores and therefore higher insurance premiums.

The Fair and Accurate Credit Transactions Act of 2003 charged the Federal Trade Commission with investigating the use of credit scores in setting auto insurance rates. Among other things, the FTC was asked to determine the impact of credit-based insurance scoring on certain groups, such as low-income and minority consumers.

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