YOUR CREDIT SCORE CAN DETERMINE WHAT JUNK MAIL YOU RECEIVE

Your FICO credit score is used by many insurance companies to determine what you pay for auto and homeowner policies. This is a fact of life, folks, and you’d better get used to it. According to certain studies, there is a correlation between lower credit scores and the filing of more claims. In other words, if your FICO is one of the higher ones, and they didn’t use this method of ratings, you would subsidize the lower score-holders. The Insurance Information Institute has a report worth reading that gives the federal position on the matter, plus input from several state actions. The FTC believes credit scores lead to more accurate underwriting, and the Government Accountability Office (GAO) thinks the feds should educate consumers in their understanding of the abundant ways FICO scores are used. As an example, did you know that if you are a good money manager, you will probably have fewer accidents, or, at least, file fewer claims? It’s a behavioral thing. It does cut down on your junk mail, but that’s not much comfort for the household with bad credit that needs insurance. There’s another good piece on this issue in The Motley Fool that provides some good advice and helpful links. So, if this is a good thing for those who maintain good credit scores—and everyone should strive for this—what is the downside? Right off the bat, the Public Interest Research Group, a non-profit advocacy group, in a 2004 study, found that out of 200 credit reports, 79 percent contained errors of some kind, 25 percent serious enough for denial of credit, thus, affecting what you pay for insurance. So, if 25 percent of the FICO scores used were wrong and resulted in incorrect credit denial, does that also mean that 25 percent of consumers paying higher insurance rates are doing so because of the use of flawed data? As a junk mail data broker, I worked with three auto and homeowner insurance companies—one local, one regional, and one national—in their acquisition of new customers at about the time they were changing from traditional mailing lists to those based on credit scores. Credit bureaus like Experian, Equifax and TransUnion weren’t scrutinized in those days like they are today, based on their role in the identity crisis. That was several years ago, but rather than getting better, it has only gotten worse.