Insurance and your credit score

Building of the New York State Supreme Court

TESS VIGELAND:
Well, we just heard how people struggle to raise their FICO scores. A good score can save thousands on a loan. And it can also affect other things like what you pay for insurance. This week, the Supreme Court issued a ruling on credit scores and how insurance companies can use them. To help us sort through the legal ease, we turn to Bob Hunter, he's with the Consumer Federation of America. Bob, welcome to Marketplace Money.

BOB HUNTER:
I'm glad to be here.

VIGELAND:
Now, I think most consumers are aware at this point that their credit scores are used by everyone from mortgage companies to insurance companies to potential employers, what was this original lawsuit about?

HUNTER:
Well, it was about what consumers have to be told in terms of whether or not their own company is charging them more because of their credit score than they would have if they didn't use credit scores.

VIGELAND:
And what did the Supreme Court say?

HUNTER:
The Supreme Court basically let the insurance companies off the hook, at least, more off the hook than they were before in terms of disclosing how credit scores are adversely impacting you.

VIGELAND:
And what specifically did the court say in terms of what insurance companies have to tell you and what they don't?

HUNTER:
Well, the 9th Circuit had ruled that every time you were charged anything higher than the lowest possible rate because of credit scoring, you had to be told that you were, had an adverse action and that therefore you can act on it. Now, the court has said, no. You don't have to disclose that. It only has to be where an insurance company decides that they really have, in some way, adversely impacted the person with the rate. So, it's much vaguer now as to what is required of an insurance company. And I think it's a loophole that many insurance companies will not disclose much.

VIGELAND:
So in essence, the insurance companies have absolute freedom to use your credit score to determine your rate. And the only reason that they would have to tell you about it is if it's the only determining factor. If it's part of a bunch of factors that they're using to determine your score, they don't have to mention it to you.

HUNTER:
Yeah. It's a much softer test. So the insurance companies, since they use a lot of different things, will probably not have to tell you that credit scoring is hurting you.

VIGELAND:
Presumably, I guess, if you're told that your score is affecting your rate, you could around for instance?

HUNTER:
Well, there's two things you can do. One is shop around and second, and probably equally important is you can make sure that your credit score is right. We found with our study of about 500,000 credit scores that there's huge error rates. So I think you want to have the ability to ask which credit score was used and go test it and make sure it's accurate.

VIGELAND:
Do you think that this ruling means that more insurance companies could use credit scores to determine insurance rates, that that might become more prevalent and indeed harder for consumers themselves to spot?

HUNTER:
I think it's already pretty well hidden. Consumer groups can't get out the data underlying the credit scores. We've challenged the data on certain grounds such as red lining type of grounds where low income and minority people might be adversely impacted and consumers can't get even at their own data. They can get at their own credit score information though, and I think they should.

VIGELAND:
So is that the biggest piece of advice? That you should be asking your insurance company whether they used your credit score and which credit score they used?

HUNTER:
Yes. You should ask that. And you also should be aware that there are still some companies that don't use credit scores. And so if you are really being adversely impacted, you should consider shopping around as well.

VIGELAND:
Bob Hunter is the director of insurance at the Consumer Federation of America. Thanks for helping us sort this out.

HUNTER:
Thank you.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...