For Consumers

Credit scoring ban

Credit scoring ban

Commissioner Kreidler is asking the state Legislature to ban insurers' use of credit scores when determining how much you pay for auto, homeowners, renters or life insurance. 

What is credit scoring?

Currently, insurance companies are allowed to use credit information when deciding  whether or not to offer someone insurance and to calculate how much to charge them. 

Credit scores, along with other factors including where you live, your claims history, driving record and age, are used by insurers in a secret formula to create an "insurance score" they say predicts the likelihood you will file a claim.

 

What's wrong with credit scoring? 

Commissioner Kreidler believes credit scoring is unfair. Insurers say that credit or insurance scores are blind to race or income, but he believes the practice has a disparate impact on people with lower incomes and communities of color.

The federal government recognized the impact of the coronavirus pandemic on peoples’ credit scores and limited how financial institutions can use them (www.consumerfinance.gov) for many people under the CARES Act (www.treasury.gov), but the protections end this fall.  

Credit scoring discriminates and it's unfair

The most common reasons people struggle financially are due to events outside of their control — unemployment, natural disasters and medical expenses. For many, the impact is felt for generations. 

We are in the middle of a catastrophic pandemic that is hitting people with low incomes and communities of color hardest. They will bear the repercussions for months and years to come.  Below are some examples of racial disparities in credit scores, unemployment, income and health insurance: 

Credit scores

  • One in five Blacks has a credit score below 620, compared to 1 in 19 Whites (www.federalreserve.gov).  A credit score helps lenders determine how likely you are to repay a loan. Your score affects how much you can borrow, how many months you have to repay it, and the interest rate you're charged. Good credit scores range from 670 to over 800. 
  • In 2016, 32% of Blacks had no credit score, compared to 15.6% of Whites. (www.urbaninstitute).
  • A 2015 report by the Consumer Federation of America (www.consumerreports.org) showed that, on average, drivers with a “good” credit score paid $214 more per year than drivers with the best credit score. That figure doesn’t factor in their driving record. The study found that in Washington state, drivers with excellent credit but a conviction for driving under the influence (DUI) paid $847 less in insurance premiums than a driver with a clean record but poor credit. 

Unemployment in Washington 

  • From March to August 2020, 57,865 Blacks and 121,955 Latinos filed for unemployment. (www.esd.wa.gov). 
  • 6.7% of Blacks have filed for unemployment in Washington state, compared to 3.1% of Whites.

Poverty in Washington

  • 20% of Blacks in Washington state in 2018 had income below the poverty line, compared to 8% of Whites. (www.kff.org)

Uninsured in Washington

  • The uninsured rate in Washington state is 8%. For Blacks, it is 11% and for Latinos it is 19%.  

Share your credit scoring story with us

If you have been affected by your insurance company's use of credit scoring, consider sharing your story with us