New FICO credit score determines if you’re a good driver
FICO is famous for its credit ratings. The three-digit number can determine whether or not you are approved for a mortgage, credit card, or personal loan. If you are approved, your score can also determine your interest rate. A great credit score can make your life cheaper and easier.
Historically, many auto insurance companies have also used the FICO credit score to determine auto insurance premiums. Last year, a study showed that have bad credit was worse than a DUI to raise car insurance rates.
But now FICO is embarking on developing a predictive driving score. FICO has partnered with eDriving to create a driving score that will assess your level of risk as a driver.
How is the score calculated?
The new FICO score will be built from data captured while you drive. A driver should install the eDriving telematics solution for smartphone, which “capture acceleration, braking, cornering, speed, cell phone distraction and other behavioral data, as well as providing the proprietary predictive analytics platform to power the FICO Safe Driving Score.
Your driving behavior will be captured, stored and analyzed the same way credit risk data is captured and stored by credit bureaus and analyzed by FICO. This data will then be used to create a score. If you are constantly accelerating and using your cell phone while driving, expect a bad score.
A traditional FICO credit score measures your responsibility using credit. In particular, people with low credit card balances and a long history of on-time payments are rewarded with higher scores. People who max out their credit cards or miss payments tend to have the worst scores. FICO constructed these scores by correlating credit behavior (do you max out your credit cards) with payment history (do you pay on time or default). We can expect FICO to do the same with autoscores. It will likely correlate driving behavior data with crashes. The more driving data available, the more refined the model can become.
Who will use this credit score?
You can imagine that many companies would be interested in this data. FICO announced that an advisory council has been formed that includes representatives from insurance companies, brokers, fleet and incident management companies, and automakers. It’s not hard to imagine a world where your auto insurance premiums and car rental rates could be determined by this score. If you are a truck driver, your job offer could depend on this result. And life insurance companies might want to know that score, given the impact it could have on mortality rates.
Who will be targeted first?
This solution will initially have two main targets: the fleet market and the teen/novice market. Any parent of a teenager would appreciate the ability to monitor driving and ensure safety. It’s a logical first place to start. However, people might start to feel less comfortable sharing driving data. Having big companies track your car’s every move certainly conjures up images of “Big Brother”.
Does anyone else do this?
There is a precedent. In the UK, a car insurance company called “Drive like a girlrequires its customers to install a black box in their car. This telematics box measures the safety of your driving, in a similar way to the proposed FICO solution. Safe driving leads to lower rewards and premiums.
You may be wondering the name. Women have traditionally shown much better driving behavior than men in the UK. However, EU regulations prohibit discrimination based on sex. As a result, car insurance companies could no longer charge women lower premiums. “Drive Like A Girl” initially targeted women whose car insurance premiums were increased after anti-discrimination rules came into effect. But the call was broad: driving like a girl meant driving safely. And this insurance company offered lower premiums to people who were willing to prove they were driving safely.
You can imagine a similar journey in the United States. People who drive safely will be willing to share their data and earn lower premiums. But, by default, people who don’t choose to use these devices could be considered higher risk. Like it or not, big data will begin to determine whether you are a good driver or a bad driver. And bad drivers will find that life could get much more expensive.
Nick Clements is the co-founder of ExpandMoney.