credit score is the number one determinant which one will be more likely to get into an accident
I'd like to know how that differs from just plain income? The more money you make, the easier it is to keep clean credit. But it also gives you more control over driving to let you be a safer driver.
Overnight snowfall made the roads slippery? An office worker can go in late, or just work from home for the day, but the low paid service worker has to go in or he doesn't get paid (or might even lose his job).
Feeling sick today? Office worker can just call in sick, the service worker doesn't have many (or any) sick days, so he drinks half a bottle of cough medicine and drives to work anyway.
Going out for a drink after work? Well paid worker can take an Uber home, or get a hotel room in the city, an option that the low paid worker doesn't have since even if he took Uber home, his car is parked on the street and is going to get ticketed or towed.
Running late for work? Office worker can call in to the meeting or reschedule his morning meeting (and just shrug and say "traffic" when he shows up late), low paid worker is going to get his pay docked or lose his entire shift for being 5 minutes late so he's gotta drive fast to make it.
Is there any actual evidence that what you're saying is the reason for the difference though? It's incorrect that credit scores are highly correlated with income [0].
Most accidents are caused by things that are pretty ordinary forms of irresponsibility [1]. A credit score is a (flawed) measure of financial responsibility. That seems like a much more reasonable, although less narratively satisfying, connection.
We find a low correlation between credit score levels and income, with the correlation coefficient around 0.27 for income levels and 0.29 for log income.
Driving too fast for conditions or in excess of posted limit or racing 8,746 17.2%
Under the influence of alcohol, drugs, or medication 5,164 10.1
Failure to yield right of way 3,728 7.3
Failure to keep in proper lane 3,381 6.6
Operating vehicle in a careless manner 3,302 6.5
Distracted (phone, talking, eating, object, etc.) 3,008 5.9
> Most accidents are caused by things that are pretty ordinary forms of irresponsibility
This is a big diversion form the actual point, but it's important. The vast majority of these crashes (the word "accident" is rarely used by news/DOTs/etc anymore) could be prevented by designing streets to control speed and improve visibility. So I'd argue that they're caused by poor design which comes as a result of misplaced societal values.
> could be prevented by designing streets to control speed and improve visibility
And if you make school tests easier, everyone will get a passing a grade, but that’s not the point.
The point here is that responsibility is not an area specific skill, people who are financially responsible, tend to drive responsibly, people who are reckless drivers, tend to be reckless spenders too.
There are road designs that significantly reduce the consequences of those actions. Narrow lanes with chicanes prevent driving at high speeds. Concrete barriers prevent cars from swerving into cyclists and pedestrians. Roundabouts eliminate left turn conflicts.
Yes, society can and should do more to encourage people to drive safely, but that doesn't mean it's impossible to do so.
The same logic applies to all sorts of things like obesity, smoking, etc.. These things obviously have multiple causes-- some societal, some individual. It's not a binary.
Low income (50% or less of MFI) = 664 median credit score
Moderate Income (50% to 79% of MFI) = 716 median credit score
Middle Income (80% to 119% of MFI) = 753 median credit score
Upper Income (120% of MFI or more) = 775 median credit score
Neither of your links contain an actual correlation measure, or links to actual source data. To even call them "articles" is a stretch, they appear to essentially be ads / link magnets (which as a category have an obvious bias).
I'm not familar with Fed notes, is there an actual published study behind that Fed note?
The amount of data and studies out there to correlate income level and credit rating is surprisingly low. The data set used by the Fed seems surprisingly weak, a self-reported survey sent out with credit card offers:
We use the Mintel/Comperemedia data (the Mintel data henceforth) that provide a unique combination of credit scores and survey-based income data for the same consumers. The Mintel data set is a monthly proprietary survey of credit card offers, with about 2,500 consumers selected to participate in the survey each month. Participants of the Mintel survey have very similar educational attainments and income to other nationwide representative household surveys, such as the Survey of Consumer Finances. The Mintel sample, however, has a somewhat higher average age and greater share of white consumers.
The link literally is a published study. Not sure if that's supposed to be some kind of gotcha. Fed research generally isn't published in third party journals.
And the method you describe isn't weak at all, compared to social sciences research in general. If anything, it's stronger than most could possibly be, since lying on the survey is a crime in this case.
I just expected a little more information around their data source other than "It's hard to find good data, this proprietary source (so you can't look at it) is the best we could find, it has some known biases, but we eyeballed it and it looks good enough". In particular I was looking for a full study that explained what "very similar" meant since the fairness of that input data seems it's key to their results.
if true, that doesn't look like a very strong correlation to me, at least at first blush. the difference between high and low income is 111 points on a scale that goes from 300 to 850?
In terms of getting a loan, anything below 580 is considered "very poor" (though I don't now how FICO relates to car insurance pricing). So the usable range if you're looking for good rates is more like 580-850, or 270 points.
> I'd like to know how that differs from just plain income?
Because it indirectly measures responsibility to a certain extent, though of course there are exceptions. And there’s not really another, better way to quickly check if someone is generally responsible.
And you can definitely find lower income people with good scores and higher income people with bad ones.
I don't care for this analogy, as you can be as responsible as possible and still have your credit tarnished due to microeconomic black swan events (and there are numbers thrown about that a majority of citizens can't afford a $1000 financial emergency without relying on subprime credit or family). What credit scoring for insurance purposes does due is suss out who is more likely to make a claim because their finances are marginal and they need the payout versus relying on their own finances for minor claims. Similar to folks who can't afford to replace their roof, and so they make a claim with a public adjuster to have the insurer cover the cost (very popular strategy in Florida for example, causing insurers to flee the state or stop insuring homeowners seeking coverage if their roof is over 10 years old).
If one is well to do, they're going to avoid making a claim unless the economic cost of the event is catastrophic (in which case, everyone is making that claim), and so the credit score is being used as a proxy for household financial strength (which is lazy, but easier than ongoing income and asset surveillance, although some credit card companies do this for credit risk management [Amex comes to mind]).
Whether or not there are exceptions (which of course there are) doesn't mean that there isn't a general pattern at work that is robust enough to make it a very strong predictor.
> majority of citizens can't afford a $1000 financial emergency without relying on subprime credit or family
What percentage of those are on their third or later always-financed, premium smartphone, have a $150/mo cable package, and a $150+/mo coffee habit, cook less than half their meals, are leasing a late-model car, etc.?
At some point in a long enough series of spending decisions, I think you have to consider responsibility a factor in being unable to afford $1000 unplanned expense.
Average rent in Missouri for a one bedroom is $1200/mo. Minimum wage is $11/hour.
Take home pay after taxes would be around $1600, leaving $400 after rent to pay for food, utilities, healthcare, transportation, etc.
Those people aren't spending $150/month on cable and they don't have a lot of spare money to put away for a rainy day.
You could move to North Dakota where average rent is around $900, but then min wage there is only $7.25/hr, giving you around $1100/mo after taxes with $200 left over for everything else.
Yup, though realistically, probably not too many people on minimum wage are living alone in a 1br. There probably aren't that many people on minimum wage, period, especially 7.25.
The biggest problem here isn't the income, though, it's the rising cost of housing due to anti-housing policies. Some of them explicit (e.g. zoning), some of them unfortunate side effects (e.g. extensive environmental reviews making all large construction projects take a really long time).
The truth is that credit scores do what you say, AND they also measure responsibility in practice, enough to where you can find all sorts of correlations.
I had a poor friend who couldn't afford new tires. She would buy used tires, with little life left, and replace them more frequently. It was more expensive in the long run, and less safe. If she had access to credit she could have bought new tires on credit.
It is also just a proxy for income, which is harder to quickly/cheaply verify than a credit score.
> It was more expensive in the long run, and less safe.
Are you sure about that? It's more annoying to have to change them, but as someone who bought some long ago, it was cheaper than new, even taking into account how much wear there was.
Most used tires actually have lots of wear left - people throw them out because they get a puncture and want all the remaining tires to match. Or even more common they have 2 good ones in back, and 2 bad in front (they forgot to rotate tires), and just replace all 4.
Those 2 good ones are sold for much less than new, but they're almost as good as new.
> If she had access to credit she could have bought new tires on credit.
Once you pay interest on that credit, there's no way she would have come out ahead. Used tires are the correct thing to do here.
> It is also just a proxy for income, which is harder to quickly/cheaply verify than a credit score.
If you look at the other replies you'll see that credit score is actually not a proxy for income. It measures responsibility.
It's more annoying to have to change them, but as someone who bought some long ago, it was cheaper than new,
The last time I got my tires changed, I paid $24 for mounting and balancing each one. Low end new tires cost around $60, so even if the used tires were free, it wouldn't take many changes for them to be more expensive. Plut it takes a couple hours to drive to the tire store and wait around to get them changes, so that's a cost too.
But I didn't buy the cheap $60 tires, I bought the $100 tires with longer treadwear warranty and better performance in rain/snow... another advantage of having more money - I can reduce my chance of getting into an accident by spending more on better tires.
I'm glad you got a good deal out of used tires. I'm sure the value is there if you look. Personally I've bought new good tires for less than $100/tire after rebate, and having them professionally installed costs over $100 where I live, so it's never seemed worth it to me.
>If you look at the other replies you'll see that credit score is actually not a proxy for income. It measures responsibility.
I do see now the other reply with the Fed's article about the low correlation (0.29) between income and credit score. That's pretty interesting/surprising to me; I stand corrected.
> Are you sure about that? It's more annoying to have to change them, but as someone who bought some long ago, it was cheaper than new, even taking into account how much wear there was.
Yes, but their as an emphasis on it being done repeatedly, which is why it incurs such a large expense OVER TIME.
When I worked in the auto Industry we used to charge customers at the dealership for disposal fee on tires, unbeknownst to them a lot of the techs and us in parts had a look at the take-offs and tried to keep some around just in case for friends or workers who were on hard-times to avoid this--they also made good rollers when tying to sell spare shells/chassis projects we no longer wanted. They typical size 205-15s were always gone as they were used on your basic econoboxes and fit most steel wheels.
I've mainly bought used tires after making the mistake of buying new I bought my first car when I was a teenager as I had a bad experience with the return policy at Sears (my mom forced me to buy new). Whether out of need or simply convenience I could simply get them easier than ordering most times and I knew where to look and who to call, but I had the luxury of working in the auto Industry and living close enough to work that I could walk, ride a bike or use one of my other cars or motorcycles. But even then I had a hard time getting all-season 255/35/20 in the middle of winter in CO for my car that I brought from SoCal, it sat parked for about 2 months until the weather improved and I ended buying a beater car for nearly the same price of the tires new even with an employee discount.
> Are you sure about that? It's more annoying to have to change them, but as someone who bought some long ago, it was cheaper than new, even taking into account how much wear there was.
If that seems to be the consensus around here, it once again omits a great deal of anecdotal evidence for the majority of people. Specifically when taking how devastating COVID was for most retail/service workers in the US and around the World.
Want to know how I know this?
Bank fees are typically the most common ding on people's credit scores, perhaps second to late or missed payments on bills or credit cards and student or medical debt rounding out the trifecta: guess who incurs those most frequently? You guessed it, people who are often unable to maintain any savings and thus have a low bank balance because they live paycheck to paycheck.
I lived that way most of my young adult life, too.
When you realize how predatory the banking system is first hand, it makes your blood boil: I had friends in the culinary World who essentially had a large part of their stimulus checks eaten away due to overdraft fees, which are structured in such a way in order yield the largest fees for the bank(s) [0].
I was moving out of the country and I gave a friend some Hifi equipment, an HDTV, and a spare car I didn't want to bother selling in order to get him out of debt.
Sadly, he couldn't even afford to register the car after he sold the TV and HIFI after paying rent and utilities as his hours had been reduced due to COVID, which is once again a reminder of who has poor credit and why.
You know there was a time when I never knew what happened to old used tires. Imagine my privilege when I was shocked to learn that people can be so fuckin poor that they buy my shitty old used tires that are clearly unsafe. I always though the tires would just get shredded into rubber or something and recycled for other purposes.
I've always hated that story, because if you go into a "goodwill" type store and look at the used shoes you'll quickly realize it's not actually a true story.
There are places where it's true - for example short term rent. And buying in bulk.
Buying used is not one of those places. Buying used is the correct thing to do for someone with low income.
The story is not used boots vs new, it's shitty, Walmart brand boots vs being able to afford the really nice L.L. Bean boots.
It's starting to lose its meaning unfortunately, as most companies realize you can just charge a lot of money for the cheaply made shit and most consumers just don't have easy options to avoid buying it.
Maintaining a really good credit score requires deliberate action and high conscientiousness over a long time. That is just a really strong proxy for success in life. There are loads of people with bad credit and high income - chronic gamblers, for instance.
No doubt there are high income people with low credit and low income people with high credit. But my point is that it's a lot easier to keep a good credit school on high income than it is on low income.
When your cost of necessities for living (food, rent, utilities, etc) is close to your total income, all it takes is a small disruption in your income to cause a cascade of credit lowering events that are hard to dig yourself out of.
The implication the person was giving is that people who have debt problems are likely people who struggle with decision making, with lots more downstream effects than just credit.
So in an unusual way, credit could almost be an approximation of EQ.
But people who have debt problems also tend to have lower income, and it can't all be blamed on "poor decision making". My credit rating was abysmal shortly after college when I was in a low paid job and juggling payments around based on what bills could afford to pay and shifting debt to credit cards. And that low credit rating meant that the cost of credit was high, making it that much worse.
But now that I have a good income, it's easy to pay bills on time, or even early, even if a payroll snafu that's not even my fault means my paycheck is late, I have plenty of cash in the bank to pay bills.
> I'd like to know how that differs from just plain income? The more money you make, the easier it is to keep clean credit. But it also gives you more control over driving to let you be a safer driver.
Basically credit score is a measure of how you manage debt, which is easier with higher income, of course. An edge case I myself recently run into is that having no debt would lower your score, as having no debt provides no evidence of how well you can manage it.
>I'd like to know how that differs from just plain income? The more money you make, the easier it is to keep clean credit. But it also gives you more control over driving to let you be a safer driver.
Doctor and nurse who work in the same hospital and have basically the same commute buy the same car. Doctor might bump someone in rush hour gridlock. Nurse is gonna nail a deer at 60mph at 4am. Doctor is gonna park it in the garage. Nurse's car is gonna get hit on the street. Doctor is gonna rent the Home Depot truck. Nurse is gonna bust the windshield trying to get a pipe in there. Etc. etc. There's tons of situational factors that make it so wealthier people can afford to be way easier on their possessions.
Would be interesting to investigate a correlation between a low-income person with a relatively high credit and an above-average increase in their income and net worth over time.
I'd like to know how that differs from just plain income? The more money you make, the easier it is to keep clean credit. But it also gives you more control over driving to let you be a safer driver.
Overnight snowfall made the roads slippery? An office worker can go in late, or just work from home for the day, but the low paid service worker has to go in or he doesn't get paid (or might even lose his job).
Feeling sick today? Office worker can just call in sick, the service worker doesn't have many (or any) sick days, so he drinks half a bottle of cough medicine and drives to work anyway.
Going out for a drink after work? Well paid worker can take an Uber home, or get a hotel room in the city, an option that the low paid worker doesn't have since even if he took Uber home, his car is parked on the street and is going to get ticketed or towed.
Running late for work? Office worker can call in to the meeting or reschedule his morning meeting (and just shrug and say "traffic" when he shows up late), low paid worker is going to get his pay docked or lose his entire shift for being 5 minutes late so he's gotta drive fast to make it.