25 July 2015

Allstate's Credit Rating System (Pt 2): Hiding Their Illogical Deceitful Practices

So, as I mentioned in part one, I demanded that the rep I spoke with have someone from higher up call me. I wasn't expecting any response, so I was surprised when in fact the next day they called. Unfortunately I was heading into a meeting and could not take it, so I asked them to call back. It took two days, but I finally did receive the call back. Unfortunately, just as with the previous reps, it was useless. Allstate has a secret, and they will not, indeed cannot, let it get out. if it does, it could cause an uproar in the insurance industry.

Here is the point - they (as with many insurance companies has started doing) base your rate on various aspects of your credit report. This is not based on your credit rating, it is based on many other aspects. When I examined their report summary showing what they consider optimal scoring pieces, the illogical approach was staggering. It is THAT aspect of the situation that I seek answers to. I spent the time writing a four page letter detailing their view as it pertains to my specific report and their rating of me, asking how they count as negative things that are indeed nothing but positive financial and credit rating moves?

Now, this call yesterday was with Karen, in the executive office. She told me she works directly for the company's president. I voiced my question to her. My first question was simply asking for evidence/proof/case studies for exactly HOW someone's credit report has any correlation with how that person drives, making it applicable to their rate? Immediately the smokescreen went up.

Interestingly, she clearly told me that yes, their use of credit is totally different from how any financial institution would use or consider the credit report. So from her own mouth, they do NOT use someone's improving credit as a good sign, but indeed as a bad.

She flat out told me that how they use credit to make their ratings is a secret that will NEVER be released to the public. They will not (and I dare say cannot) offer a valid reasoning, and so they hide behind "policy" as if that makes it all right. The most shocking (and telling) point of the conversation was when she plainly told me "most all people just accept the policy and move on." In other words, be a sheep, shut up, and walk over the cliff we lead you too; do not ask questions, do not go against the stream.

As I continued to push asking for answers or someone who could provide that, she said all answers were provided in the summary they sent me. I said "No, there were no answers, simply unqualified policy status notes."

Here are some samples of the illogical use of financial credit points that they use.

Number of revolving accounts opened in the past 2 years: this would be a typical credit card, or store card; credit you pay monthly but not a fixed payment, but one that fluctuates depending on your balance, and that accrues interest. To get the "best insurance score" here, they want it to be zero. But here is the real life scenario. Credit is a competitive field, and everyone wants your business. To get it, they almost always offer some incentive, usually things like a discount coupon for applying, or a zero interest for 6 to 12 month plan, etc. Now, it would be STUPID to not take advantage of such incentives when they are offered. But per Allstate, you should use your higher interest credit card that you've had for years, rather than buy something by getting a new card, and paying zero interest on your purchase.   

Opening a new account is almost always a positive move if it is being done to get the benefit of an incentive. However, yes it is a negative thing if you are doing so simply because you are maxed out on your other credit lines and open a new one simply to get further into debt. My direct question to Allstate is, are they examining each new account to determine which scenario it is? I already know the answer is NO, because in my situation, the 3 new accounts they show me opening are ALL exactly the first scenario. All were opened to take advantage of 6-12 months of no interest to make purchases or cover unexpected medical bills. All three were paid off within the incentive plan costing me zero interest, and none of those 3 have been used since. 

Per Allstate, I should not have put myself and my family in a worse financial situation by using an existing card and being charged interest during the payoff period.  Allstate obviously only looks at cold numbers, and does not take into consideration the situation at all. They are ignoring the positive and penalizing us for the potential negative every time. This is illogical and abusive, and shows evidence of an outdated mode of thought with their credit ranking system.  

Number of bank inquiries in the past 2 years: this is a simple inquiry mind you, not an actual opening of a line of credit. If you go to the bank to open a lower interest credit card - bada-bing, a bank inquiry. If you go to get a consolidation loan to improve your financial situation - bada-bing, and inquiry. And the same as my comments on credit card inquiries above - going to bank for say a home improvement loan (which we did) should not be considered a negative but a positive. It is a betterment of life, and improvement of stress. If my house if falling apart, that increases stress - if I seek and acquire a loan to fix it, that reduced stress. 

That is the kind of case by case correlation Allstate totally ignores in their system. We sought a home equity improvement loan, but it would not be enough – they inquired, we turned it down. A simple inquiry without an opened account should not even matter, but it does to Allstate for some reason. In our case, instead, we used a low rate credit card to do the improvement – which of course then causes the next point to be true:

Number of resolving accounts with a current balance greater than 75% of the highest balance: okay, so this one at least has a little bit of validity to it, because even financial institutions look at this, but sadly it just means both they and insurance have an old outdated view of what this COULD mean, and they simply see it as negative at all times.

If someone is having true financial issue, and living off of their credit cards, then the pattern would be a bunch of cards open and or recently opened, all of which have become nearly maxed out. This is a bad sign, and should be viewed negatively. But is a 75% or higher balance ALWAYS such a negative situation?

Say I have five credit cards with balances. Say all of them have less than 25% of the available balance used (which is good per most financial company calculations). Now say all five of them are at a higher interest rate, like 15-22% interest. Also, I now have five individual monthly payments being made. Now, say I go to my bank (inquiry ding against you), and get a 9.9% interest credit card (new account opened - ding against you), and the balance on the card is just barely high enough to consolidate all of my other five cards into it. I have now made a big step forward in my credit and financial status. I now have one single monthly payment (better for my budget), on one lower interest card (saving money), but the card is nearly maxed out now. That is NOT a bad thing, it shows I have one debt, not five, and one lower debt on top of that. 

Do financial and insurance institutions look at the whole picture to determine if someone has made such a positive step, versus someone who is just maxing out their cards to survive? All evidence would say their system just looks at cold number, and not the situations behind them. THAT is faulty financial practice, and just a way to rip people off further.

In our case we had some home improvements to do as mentioned above, so I used one card to do all improvements, one card with a decently low interest rate, thus saving us from having multiple smaller minimum payments, consolidating everything into one account making payback less stressful. I indeed made a most positive financial decision that both removes stress from life and my pocketbook. But Allstate says nope, we're going to rip you off further because of your good decision.

Average age of accounts (in years): This has got to be one of the most useless and backwards considerations Allstate has listed. It is like they are operating in a mindset of 20 years ago. Today’s financial landscape is all about competition and reduced rates. There is barely a week that goes by that I do not see or receive some kind of notice to consolidate and lower my interest rate by switching to a new company’s card. If the ability and rates are worth it, not doing so would be a big, big negative financial move in life. Allstate considers is a negative move – quite a warped view point logically. Allstate would rather I stick with my 15 year old credit card that has a 22% interest rate, rather than open a new account and consolidate down to a 9% rate? It truly sounds like whoever made this whole credit score system for them is clueless about life in the real world if they would count something like this against a person. And this shows all more clearly in Allstate's line item for:

Number of accounts held over the past 5 years: Again, competition causes everyone to close off high lines of credit, so having more than seven accounts in a 5 year period (their considered limit) is not only NOT a negative thing, but in fact COULD be a most positive move. If every year I go out and buy something, opening a new line of credit at 6 months no interest, and pay it off, then I am saving money. But the fact that I open and pay off more than their 7 desired accounts, I get penalized. But again, if they all are not considering the circumstances, then blindly using a number like 7 is just ludicrous on their part. Yes, if 7+ new accounts added to the already existing accounts, and all are holding balances now, then that could be a bad thing; but unless they are looking at the whole picture of those new accounts, then judging by a blind number is illogical and intentionally or ignorantly abusing the customer.
So, in the end we are left with what appears to be an archaic system being used by Allstate to simply look at a persons numbers of things, totally ignoring their consequences in someone's financial situation, and penalizing them based on it. I wrote in my lengthy correspondence to them, suggestion they update their credit/risk logarithm to the 21st century standards, which should cause them to see things almost the opposite of how they appear to now be viewing them.

I also suggested that when a questionable change like one of these occurs, especially with a long time loyal customer like I have been, that they take the time to look deeper and inquire as to if the change is a negative or positive change. Because blindly looking at cold lifeless numbers is absolutely no way to treat customers of any length of loyalty, but especially not long-time loyal ones. 

What this tells me, and hopefully you can see it to, is that Allstate, and any insurance company that operates a credit rating system in this manner, are not at all concerned with the betterment of their customers, but in fact have an archaic, backwards, illogical and deceitful system in place for the simple purpose of jacking up rates and sucking more money from people.

I have been a 20+ year loyal customer with Allstate, both with car and house insurance, paying on time and without instance all of that time, and have filed maybe 2 claims for anything in all of that time, yet, they ignore all of that and put a system in place that cares not about people, but uses illogical logarithms to extort more money from people. 

Of course the worst part is, no one at Allstate acknowledged knowing why the system does what it does, no one cares to find out, no one wants anyone to ask about it, and they all have a eerie "don't ask" mentality when you do inquire as I have done. It comes across as very intentionally deceptive on their part, which I believe it totally the case (until proven otherwise). Their system is intentionally ripping people off, and they refuse to give any kind of clarification for why they have such a system in place. 

Well, Allstate has lost my long-time business, as I will be switching from them in the very near future. I will also continue to promote these articles, hoping to open the eyes of other "sheep" out there in hopes that other start pushing for answers. If a majority of people start lobbying for answers, maybe these illegal practices can be exposed for what they are.