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Insurance Credit Scoring: An Ethical Issue The issue at hand is the use of a consumer's credit score as an underwriting tool for auto insurance rates. What is a credit score or FICO score? A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrower's credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. Isn't it interesting that the score most important in our financial lives, our consumer credit score does not even contain full disclosure? As stated above the Federal Trade Commission has ruled that it is ok for Fair Isaac & Co not to disclose the algorithms used in this process, but what about consumer rights. While it is important to understand what a FICO score is, it is not the main issue of this paper, insurance rates are. So where is the connection? All the public knows is that Fair Isaac tells us there is a high correlation between people with bad credit and high risk drivers. This notion is insane and from what I can see from this black box approach, there is no real causation » Discuss it » Continue Reading »
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