Credit Score is Predicative. But should it be used?

[Allen Trent]

So? What's your credit score, Allen, in spite of all those errors that got corrected?

Not sure what my credit score is off the top today as I have had my credit frozen for well over 5 years after being part of several of the big national security breaches/hacks. Last I knew, it was around 830, but it varied substantially from day to day of the month based on the balance of my AMEX card. Because my AMEX has no limit, it would show as me being at 100% of my balance limit no matter if I had used it for $1k that month or $50k.

I have no new debt or credit. Just a shrinking mortgage balance with about 90% equity in my house & AMEX paid in full monthly

But my annual insurance policies will state every year that I have some negative adverse actions on my insurance score because of "too much or too little activity related to oil & gas"......aka, everything is so good, that the worst thing is that I don't have a fuel credit card.

I believe in insurance scoring, it just needs some oversight so consumers can know what is taking away points & adding points like happens with actual credit scores. In most years recently, the only ones making a profit in the insurance industry is the insurance scoring system data companies

 

[whatyouwantfinally]

Is Credit a fair Variable to use if a Person who owns a home gets a better Credit score when a Renter who pays the same and on time, does not get a better CS.

What about the inverse; millions of people with late rent payments who don't have it reflected on their credit scores?

There are lots of factors that go into credit scores. I don't see the connection between unfairness and rent payment history not being factored in.

 

[Real_AMG]

The problem with the credit score is that the rules are not intuitive to somebody who does not know the rules of the game, the importance of it is not emphasized in public education, and small mistakes take long periods of time to recover from.

A friend of mine when he was 19 years old, for example, heard from somewhere that if you pay your credit card down to 0 it hurts your score. He never paid his bill, and ended up with 4 late payments before he realized what happened. His score didn't recover for the better part of a decade. Yes, it was dumb. But should a dumb mistake like that when you're 19 destroy your chances to find a job, rent an apartment, or afford your car insurance premiums?

The credit game only becomes fair when everyone is taught how to play. People who make mistakes before they learn become victims of a system, their every financial move judged by people they can't see according to rules they don't know.

 

[adjusterjack]

Last I knew, it was around 830, but it varied substantially from day to day of the month based on the balance of my AMEX card. Because my AMEX has no limit, it would show as me being at 100% of my balance limit no matter if I had used it for $1k that month or $50k.

I have no new debt or credit. Just a shrinking mortgage balance with about 90% equity in my house & AMEX paid in full monthly

You're preaching to the choir. I have been mortgage free for 23 years. I have had no car payments for 19 years. I pay my credit card bills in full every month. I use credit cards for two reasons. To buy stuff online for convenience and otherwise to get the cash rewards. My credit score fluctuates between 780 and 820 depending on the balances which could be between a few hundred and several thousand.

But my annual insurance policies will state every year that I have some negative adverse actions on my insurance score because of "too much or too little activity related to oil & gas"......aka, everything is so good, that the worst thing is that I don't have a fuel credit card.

I've never had any insurance company say that to me and I've mostly been insured with companies with competitive rates so it was never an issue.

However, when my bank gives me my score, I get notices like:

"Your credit score is impacted by lack of recent installment loan information. In general, people who purchase with an installment loan, and pay back the loan on time tend to demonstrate the ability to manage a variety of credit types."

In other words, the lending industry wants you to be in debt and rewards you with a higher score if you borrow money and pay them outrageous interest rates, but pay on time.

No thanks. I'm happy with my credit score and don't need to go into debt to get a higher score.

But from an insurance standpoint we're not talking about people like you and me. We're talking about people with substantially lower scores. People in financial difficulty are more inclined to commit insurance fraud. While many don't commit fraud, the risk is there and rates are applied accordingly.

 

[scagnt83]

But from an insurance standpoint we're not talking about people like you and me. We're talking about people with substantially lower scores. People in financial difficulty are more inclined to commit insurance fraud. While many don't commit fraud, the risk is there and rates are applied accordingly.

Credit Score does not necessarily indicate financial difficulty. You can have a poor score just by not having sufficient credit history. Or perhaps you just maxed out credit lines because of emergency expenses but are still paying everything on time (it could cause a 100 point drop).

Plenty of people who have great credit are in financial difficulty. And plenty of insurance fraud is committed by those individuals... and it often costs the insurer a heck of a lot more since those people often have significant assets to insure. (look at the case here in SC that has been in the news... the guy was a multi millionaire who Im sure had a credit score over 750... and now there is like 3 investigations into insurance fraud.... among the other crimes)

 

[scagnt83]

The problem with the credit score is that the rules are not intuitive to somebody who does not know the rules of the game, the importance of it is not emphasized in public education, and small mistakes take long periods of time to recover from.

A friend of mine when he was 19 years old, for example, heard from somewhere that if you pay your credit card down to 0 it hurts your score. He never paid his bill, and ended up with 4 late payments before he realized what happened. His score didn't recover for the better part of a decade. Yes, it was dumb. But should a dumb mistake like that when you're 19 destroy your chances to find a job, rent an apartment, or afford your car insurance premiums?

The credit game only becomes fair when everyone is taught how to play. People who make mistakes before they learn become victims of a system, their every financial move judged by people they can't see according to rules they don't know.

This is all very true. Most people are not told anything about how credit scoring works. Especially back before the internet age when I ruined mine at 19 years old.

My parents always told me to pay the card off to zero. But as you pointed out, that isnt what credit scoring wants you to do. I know someone who was denied for a car loan because she always paid off her credit card to zero... so there was no running balance... so they "didnt know if she could manage an ongoing balance". This is someone who paid off their debt to zero every single time they incurred a debt over a 10 year period.

Its a system they expect you to know without giving you any real info about the system. Finally, after congressional legislation, credit bureaus have been forced to be more transparent about how scores are calculated. But its still a system rigged in favor of the collectors of the debt... when the whole financial system has been created around trying to force people to enter into debt... even if you dont need the funds... you need the credit score... even when you have the funds.... its a catch-22 in favor of financial institutions.

 

[adjusterjack]

Yes, the credit/lending industry is effed up. Home buyers have to practically pledge their first born and sign in blood to get a loan but 18 year olds (no job, no credit, no brains) can borrow tens of thousands in student loans just for the asking, often guaranteed by the government (meaning us taxpayers).

 

[whatyouwantfinally]

Credit Score does not necessarily indicate financial difficulty. You can have a poor score just by not having sufficient credit history. Or perhaps you just maxed out credit lines because of emergency expenses but are still paying everything on time (it could cause a 100 point drop).

Plenty of people who have great credit are in financial difficulty. And plenty of insurance fraud is committed by those individuals... and it often costs the insurer a heck of a lot more since those people often have significant assets to insure. (look at the case here in SC that has been in the news... the guy was a multi millionaire who Im sure had a credit score over 750... and now there is like 3 investigations into insurance fraud.... among the other crimes)

Multiple car accidents in a year doesn't necessarily mean you're going to have an accident this year either. Plenty of people have a bad run of accidents and then never have another. That doesn't mean driving history isn't incredibly important/useful in factoring auto insurance premiums.

It's about probability. The fact that probability isn't a perfect predictor isn't an argument against it.

 

[Allen Trent]

But from an insurance standpoint we're not talking about people like you and me. We're talking about people with substantially lower scores.

see, this is the problem. you & I with decades of insurance experience believe this is how it works. But I can promise you, it just isnt the case. People moving from 1 state to the other or buying a new house will have their insurance scores heavily impacted because the systems are showing people to have frequent address changes or multiple open home mortgages

I believe the insurance scoring system works at the macro level, but when you dig in to specific cases, no one can explain it or point to reasons why a persons insurance score is near perfect for an Auto insurance score, but middle of road on the home in some cases.

there is just way too much secrecy surrounding it. I dont want it to go away as I benefit from it overall, I just wish an agent didnt have to shrug their shoulders & tell clients they have no idea. Then, the carrier documents tell the insured to call the data company like Lexis. when they call Lexis, they get horrible customer service & are told the big bad insurance company decides how the score works & to run their credit reports to see what is causing it. the consumer runs their 3 credit reports & get told they are a great credit score & they call their insurance company/agent & get told they dont know what is in the proprietary scoring system built by Lexis. this is the problem I see. the secrecy & lack of direction of what impacts the insurance scoring system.............................but then again, I am old enough to remember when only your driving record/age/car were pricing decisions. I even remember when Progressive tried to get Multi-policy credit outlawed as it was an unfair advantage of multi-product carriers over the auto only carriers.............LOL

 

[Allen Trent]

It's about probability. The fact that probability isn't a perfect predictor isn't an argument against it.

but it would be if you were using inaccurate driving/accident history for a specific driver. The insurance scoring systems are based upon perfect & timely data. But the insurance scoring is pulled from mostly from credit score information from the big three & those are full of errors, inaccuracy & fat fingered data from closed/transferred accounts.

Go pull address data from the data sellers. With our hot real estate markets of people moving, selling, etc, the majority of address checks for licensed drivers are not even close to accurate as to who is currently living in the house as a potential driver. So, imagine all the data inaccuracy of the credit scoring systems

I dont have a problem with accurate verifiable use of data, but have seen a ton of widowed women sitting on millions in the bank with no debt who get horrible insurance scores because they either never used debt or the deceased husband had the debt/credit in his name.