How Relevant Is Credit Score For Insurers?
Your credit score is used to measure your creditworthiness—the probability that you’ll pay back a loan or credit-card debt. But you might not know that car insurers are also searching through your credit files to do something completely different: to predict the odds that you’ll file a claim. And if they think that your credit isn’t up to their highest standard, they will charge you more, even if you have never had an accident. But an unfair side effect of allowing credit scores to be used to set premium prices is that it effectively forces customers to dig deeper into their pockets to pay for accidents that haven’t happened and may never happen. So credit score is relevant and you should get car insurance quote from multiple companies and see how they deal with a person that has your credit score.
Consumer Reports has made a thoroughly investigation of this practice. Its researchers analyzed more than two billion auto insurance price quotes from 700 companies for hypothetical drivers all over the country.
The results, published in the September 2015 issue, are very alarming for drivers with poor credit scores and even for those with scores that are good rather than excellent. “Our single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home,” the report states.
By 2006, almost every insurer was using credit scores to set prices. But two-thirds of consumers surveyed by the Government Accountability Office at about the same time said they had no idea that their credit could affect what they paid for insurance. Even today, insurers don’t advertise that fact. They usually won’t tell you what your score is; they don’t have to. If a sudden drop in your score causes them to raise your rates or cancel your policy, you’ll receive a so-called adverse action notice. But those notices “provide only cryptic information that’s of limited use,” says Norma Garcia, senior attorney and manager of the financial services program at Consumers Union, the advocacy arm of Consumer Reports. California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices. In those states, insurers base premiums largely on a consumer’s driving record, the number of miles driven per year, and other factors.
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