Debt Does In Dallas: Credit Scoring Hurts Texans' Insurance Premiums

If you're in debt in Dallas, or elsewhere in Texas, and your credit history is hazy, you're going to pay up big time to insure your home or auto.

That's the conclusion of a Dallas Morning News analysis that claims "credit scoring," one of the insurance industry's top tools to separate the sheep from the goats, winds up costing policyholders with low credit scores 35 percent more, even if they've never had an accident or filed a claim.

Sound unfair? Property insurance is full of inequities, such as the fact that young male drivers pay a lot more than their female counterparts. Insurers cite University of Texas research showing that drivers and homeowners with low credit scores tend to file more claims.

This correlates to banks refusing to lend money for inner-city mortgages because they would be more likely to default, a practice known as "redlining." It's illegal. But credit scoring, which is illegal in Maryland and California, is permitted in most states ... including Texas. That could change, if the Dallas Morning News has its way.

"Texas came close to banning it in 2003, but the Legislature opted to impose limits," says an editorial in the paper. But did the major insurers like State Farm, Allstate and Farmers (a unit of Zurich Financial), violate the limits? The paper's analysis shows that 19 of the 26 companies operating in the Lone Star State charge higher rates for those with low credit scores, sometimes 2½ times as much.

Insurers claim that credit scores have gone up during the recession because people are more cautious with their spending. Consumer organizations say that's simply PR, since foreclosures are reaching astronomical proportions and the unemployment rate is hovering around double digits.

Since Texas is a big state with millions of motorists and homeowners, any serious and successful effort to end credit scoring could be painful for property insurers, and could cause a loss in income. In other words, welcome to our world.