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Credit scoring questioned in Minnesota

Credit scoring is coming under angry fire in many states, including Minnesota. Many state governments are not convinced that credit history accurately predicts the likelihood that you'll file an insurance claim.

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Also, while it isn't against the law for insurance companies in Minnesota to use credit histories to decide whether or not to insure someone, it is illegal for them not to inform consumers that they will be doing a credit check and using that information to make their decision.

According to Minnesota Department of Commerce Commissioner Jim Bernstein, "Since the insurance industry has not allowed regulators to review their methods of determining insurance scores, we are not convinced of their fairness. Everyone who does not have a credit history should not be treated the same way. If so, someone who always pays with cash would be put in the same group as people who are bad credit risks."

Bernstein says he also has concerns that the use of credit histories inherently discriminates against certain groups such as the elderly and the poor.

"The burden is on the insurance industry to demonstrate that credit scoring does not single out any one class of people," he says.

A flurry of credit checks in a short period of time will lower your credit score, something many consumers aren't aware of. If you've applied for insurance at the same time you've applied for a loan or a credit card, your credit history will impact your insurance score.

The Minnesota Independent Insurance Agents Association has supported legislation that allows the use of credit histories to decide the risk of insuring a particular person, but insists that insurance companies still inform consumers of the practice.

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