What does a credit report have to do with the quality of a person’s conduct?

Credit Report


The question stems from a personal financial setback.

My 16 year old daughter got her driver’s license this month, which I just learned will double our household auto insurance premiums. We used to pay $ 678 every six months, but now we will pay $ 1,276 every six months.


Now I know where I’m going to spend the automatic child tax credit. I was so happy about two weeks ago.

This exorbitant price is typical of young drivers, who are guilty until proven guilty from the point of view of insurance companies.

Another culprit factor until it is proven to be innocent used by auto insurance coverage is the credit rating. The worse or thinner your credit, the more you pay.

It’s counterintuitive. Why should people with clean driving records have to pay more for their insurance because they are behind on their credit card bill or just don’t have a credit report? Driving and using credit responsibly are clearly distinct skills.

The practice of using credit scoring in insurance products and pricing is the subject of active debate at federal and state levels. In Congress, New Jersey Senator Cory Booker and Michigan Representative Rashida Tlaib have proposed banning it.

The insurance industry argues that the historical correlation between lower credit scores and a higher number and higher dollar value of damage claims justifies the use of credit score in rating.

In Texas

In June, entrepreneur Nestor Hugo Solari moved his young auto insurance company, Sigo Seguros, to Austin and launched a new program in the state targeting the Spanish-speaking population.

One of the selling points of Sigo Seguros is that it ignores personal credit scores when purchasing insurance. He considers the practice to be discriminatory, particularly against Spanish-speaking Texans. To further attract its target audience, the company will also not need a traditional state driver’s license. Customers can provide a foreign driver’s license while receiving coverage at no extra charge.

The typical Sigo Seguros customer, according to Solari, seeks liability-only coverage and may forgo collision coverage because they drive older, less valuable cars.

I’ve written about this before, but from a personal finance perspective, I favor this auto insurance flavor. We need strong protection against catastrophic liability. But we don’t need car damage protection because for personal finance reasons people shouldn’t drive valuable cars. Above all, I hasten to add, with a new 16-year-old driver behind the wheel.

I refuse to insure against damage to my 2009 Hyundai, which has a trade-in value of approximately $ 2,000. What is damage insurance for that kind of value? The thing is almost worthless on purpose, just the way I like it. I am therefore saving a little by declining collision coverage, as many Sigo Seguros customers do.

I asked Solari about her problem with credit scores. He pointed out that the Spanish-speaking Texans his company seeks to serve may have slim or no credit records due to recent immigration status or because the community is relatively underbanked compared to the state’s English speakers.

I have confirmed to my auto insurance company that they take personal credit into account when determining my premiums. Texas insurance rules allow credit scoring as a pricing factor as long as it is not the only factor considered. Some states, including California and Massachusetts, have banned personal credit as a factor because of potentially discriminatory effects.

Other factors are also important, such as the kilometers driven, the density of the car as measured by the zip code and the driving record.

In theory, what is a fairer method of pricing auto insurance?

Critics of the use of credit scoring argue that observed driving behavior and driving record are what should matter most. They are also right.

Enter Big Brother


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