Study: Race, Age Have Credit Score Impact

Insurers had a measured response to the findings.

The National Association of Independent Insurers in Des Plaines, Ill. said the results would not impact the debate on the issue in the state, noting that the legislature had already passed legislation "severely restricting the use of such scores in 2002.

NAII noted, however, that the report might have impact in other states and with the National Association of Insurance Commissioners.

The American Insurance Association in Washington, D.C. said the study should be viewed carefully commenting that its recommendations are "more than anything, an admission that the study should be viewed carefully."

Use of credit scoring "has encouraged competition and enabled insurers to more precisely underwrite and price their products, allowing individual consumers to pay a more accurate price. Because insurers can more exactly pinpoint the risk a particular consumer presents, they can rate them accordingly," AIA said.

Among the patterns the study said it found were that older drivers have higher credit scores, lower credit-based rate assignments, and less likelihood of lacking a valid credit score.

Examining income, the study found people in the lowest income categories, less than $20,000 per year and between $20,000 and $35,000 per year, often experienced higher premiums and lower credit scores. More people in lower income categories were found to lack enough credit history to have a credit score.

Looking at racial difference, the study found that non-whites had higher premiums. Where insurance was cancelled based on credit score, minorities who were not Asian/Pacific Islanders had greater difficulty finding replacement insurance, and were more likely to experience a lapse in insurance while they searched for a new policy.

The study noted that a number of incidents had led to concerns about credit scoring. It cited the case of a couple that was denied the best credit score because they pay all their credit cards in full each month.

Among other cases mentioned was that of a divorced mother who sought bankruptcy protection when her ex-husband defaulted on his business debts and she was in danger of losing her home. As a result, her credit score dropped and her insurance costs rose.

An American citizen, the report said, had established good credit in Canada, but when he returned to Washington, after 21 years, he had difficulty finding reasonably priced auto insurance because carriers claimed he had no credit history.