> 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.
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.