Right Street

After All These Years, States Still Don’t Understand Credit Scoring

By | April 15, 2020

  • April 16, 2020 at 9:34 am
    Birny Birnbaum says:
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    Mr. Smith’s blurb is a mass of misinformation and misdirection. Error 1: Insurance credit scores and lending credit scores both rely upon the exact same consumer credit information found in a a credit report. What differs are which of the hundreds of possible factors are used and the weight given to the chosen factors. But factors like public records, payment history, credit uitlization and type of credit are common to both.
    Error 2: Whether credit scoring was a reliable predictor of claims prior to the COVID19 pandemic, the fact that consumer credit information will radically change in a short period of time means that the training data used to calibrate the scores are not the same data we will see now. In actuarial terms, the validity of the assumptions underlying the credit score relationship no longer hold. This is precisely why the PA DOI prohibited insurers from using declining credit scores to penalize consumers and why the OH DOI prohibited insurers from using expired driver licenses to penalize consumers — in the latter, the assumptions underlying the relationship between expired driver licenses and claims outcomes no longer holds because DMV offices have been closed and people are unable to renew their licenses through no fault of their own. Peoples’ credit scores will likewise suffer through no fault of the consumers and it is profoundly unfair — in both actuarial and human terms — to punish consumers for the economic shutdown.

  • April 26, 2020 at 10:36 am
    knowall says:
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    When they first came out with it; I guess in the 1990’s late 90’s, it was said that the credit score was the most reliable predictor of whether or not that insured would have a claim or not. So the obvious question we asked is why don’t you just use that as a rating factor then? (The managers did not appreciate that question.)



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