Here's what happens if you don't play the credit game
By LOREN STEFFY
CONROE Howard Bensema is paying the price for years of
He paid cash for his last two houses. He also paid cash for his cars, including the 1902 Oldsmobile he restored and displays at auto shows.
Bensema has a spotless driving record, too, and is meticulous in paying bills.
"I have paid on time or ahead of time for more than 50 years," he says.
While Bensema's habits are laudable, even inspiring, in our debt-laden times, in the eyes of his insurance company, they make him a credit risk.
Since the first of the year, he's been wrangling with his insurer and the state insurance commission.
Given his history, he feels he deserves the lowest possible rate, but he's not getting it.
The problem is that Bensema has no recent history of borrowing money and paying it back. That means he has no verifiable credit and a minuscule credit score. In citing its reason for denying him a better rate, his insurer listed the reason as "total credit less than optimum."
At one point, he was told "optimum" credit in his case would be debt of $128,000.
So because his debt is zero, Bensema pays more for insurance than those in hock.
Most credit scores are compiled from a scoring model known as FICO, which was developed in the 1980s by the rating company Fair Isaac.
FICO scores range on a point scale from 300 to 850, with higher scores indicating lower credit risk.
But here's the problem for Bensema: To generate a score, a person must have at least one account that's been open for six months or more and at least one account that's been updated in the past six months.
Bensema's entire recent credit history is this:
In 2002, he and his wife went to an opening of a Kohl's store in Conroe and bought a watch. The store was offering a discount for opening a store account, so Bensema applied for a card, paid the bill as soon as it arrived and closed the account. He has never had a major credit card. He either pays cash or uses a debit card.
"A lot of people my age who lived through the Depression don't use credit," says Bensema, a retired steel company executive.
And not just people his age. Earlier this week, after giving a talk to accounting students at the University of St. Thomas, I brought up the topic of credit. Several said they didn't have credit cards or had not yet established credit.
They, too, may be getting charged more for their insurance than others their age who have a trail of debt.
For people like Bensema who live outside the credit nation in which so many of use are mired, scoring amounts to an unfair penalty.
It imposes rules of a game they have refused to play.
Now those ratings are affecting not only our ability to go further into debt but to get basic services such as telephones and electricity. In some cases, employers use them to evaluate job applicants.
Last week, I wrote about TXU's plan to begin using credit scores for setting electricity rates.
After an outcry from consumers, the Dallas-based company did an about-face this week and said it will hold off on implementing the policy, at least for a while.
It's a minor and probably fleeting victory. Other industries already are developing perverse uses for credit scoring.
On Friday, the Federal Trade Commission said Sprint and AT&T agreed to pay almost $1.5 million to settle charges that they failed to notify applicants for phone service that credit reports were used.
You'll notice that the phone companies got spanked for not telling potential customers about the practice, not for the practice itself.
The justification for using credit scoring for non-credit purposes is that there's a "correlation" between our credit histories and other behavior, like filing fewer auto claims. Bensema is proof those correlations are flimsy suppositions.
Credit bureaus say scoring has created a impartial numerical guide for granting credit by removing human error from the process.
Actually, it removes all humanity from the process. It creates a veil behind which companies can hide without taking responsibility.
Play the game, they say, and we'll give you a score. Everyone take a number between 300 and 850. Howard Bensema doesn't want to play the game, and he worked hard his entire life so he doesn't have to.
But in this game, he and others like him still get sent to the penalty box.
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