Auto Insurance and its cost are very complex issues. There are many factors that the industry has created along with both state and federal bureaucracies.  We may delve into many of these factors in the future but for now let’s take a look at just one.

The problem we are dealing with is using FICO scores to determine automobile insurance rates. The credit score FICO was developed by Fair Isaac & Co. This method was created in the 50’s.

FICO scores are accepted by lenders as a reliable means of evaluating a borrower’s ability to re-pay a loan. FICO attempts to take credit history and create one number.  The credit bureaus don’t divulge how the scores are calculated. The Federal Trade Commission says this acceptable.

Isn’t it fascinating that this magic number that affects our lives does not contain full disclosure? As previously mentioned, the federal Trade Commission has ruled that it is okay not to disclose how this magic number is created (Once again the Government is here to help you.) What about your rights as a consumer?

How does this affect auto insurance rates? All consumers know is that FICO tells us there is a high relationship between people with bad credit and high risk drivers. This idea is ludicrous and from my point of view unacceptable; there is no real relationship between the two. This type of logic is similar to convicting a person of something before they have even committed a crime.

Let’s say that a study is created indicating there is a high relationship between the criminal element and people with bad credit. Is this to say that just because you have poor credit you are more likely to commit a crime and therefore you should be jailed because you are a risk to society?

This entire process is discriminatory just because you have had an unfortunate event in your life, such as losing your job in the difficult economy of 2009.  It is also possible you have never established a high credit rating. This magic number FICO that is not disclosed and which is the method of determination may be why you’re paying higher auto insurance rates. Possibly you will not be able to get auto insurance. Talk about an injustice!  This process in not right.

The following is quoted directly from the Federal Trade Commission’s web site. “The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Equal Credit Opportunity Act (ECOA), which prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because you get public assistance.”  Do you think you could possibly know if you are being discriminated against?

Many government agencies use this same type of deception to subtly allow discrimination and allow others to extort money from you. I am of the opinion that FICO is discriminatory.

In conclusion there is very little you can do to change this injustice. I feel it is important for you to have an understanding of this detrimental affect on your auto insurance rates. You will find that a negative FICO will affect many other aspects of your life.