auto insuranceYou might expect a plunging credit score to affect your ability to qualify for a car loan or how high the interest rate on your credit card will soar. But too often Americans don't realize a plunging credit score can cost them big bucks on insurance premiums.

One of the biggest mistakes insurers say people make is not realizing when their credit score is tanking.

"Credit scores factor heavily into your rate," says Ashley M. Hunter, a construction-risk insurance specialist who owns HM Risk Group in Austin, Texas. That's because in the eyes of your insurer, if you've missed a few payments to your credit card company or have written a lot of bad checks (that wound up in collection), chances are you'll do the same thing to them.

So, they charge you more money to protect themselves. Kind of like the insurer taking out an insurance policy that they'll get paid for the insurance plan they're selling you.

Hunter says people with poor credit are also more likely to file a claim. And that financially stable people have been shown to have fewer traffic violations or accidents than those who are financially stressed. "So you're charged high premiums in anticipation of the violations, accidents, or claims you'll have in the future," Hunter says.

Criticizing the use of credit scores
Many are speaking out against the use of credit scores in the insurance premium scoring game, claiming insurers are unfairly using credit scores. And, in many cases not notifying consumers that their credit is coming into play when determining premiums.

Eric Poe, chief executive officer for CURE Auto Insurance, a not-for-profit reciprocal exchange based in Princeton, N.J., that fights for fair insurance practices, says a credit score is just one of eight factors used to determine rates.

"Age, how long you've been licensed, gender, where you live, how you use your car (how many miles you drive to work or annual mileage), the car's cost, and your driving record used to be the seven things that determined rates," he says. "Unfortunately in the past decade, the largest auto insurance companies have introduced many income proxies such as credit score, your highest level of education completed, and your occupation to determine whether you are eligible to receive the lowest rates."

Poe says even if a driving record is spotless, a less than perfect credit score could lead to excessively high premiums.

"It's unfair," says Joe Goodwin. When Goodwin's job became a victim of the recession, his credit score dropped nearly 100 points. "I got behind on bills for the first time in my life." When renewal time rolled around on his home and auto insurance policies, Goodwin says his premiums jumped 27%. "I had never filed a claim and was a 20-plus year customer."

Goodwin says when he asked his insurance agent what prompted the spike in rates, he was stonewalled. "I got the runaround. It wasn't until I started shopping around and learned [from agents] that my credit score is factored into premiums that I connected the dots and realized I was being punished for my credit dropping."

What's a poor credit score to do?
Poe suggests asking a lot of questions when obtaining rate quotes and before renewing any policies. "Due to the fact that all insurance companies use the seven general factors to determine rates, it is important that drivers ask an auto insurer if they use any income proxy rating factors, as this can determine how much they pay significantly," he said.

If your agent can't give you a straight answer as to whether or not your credit will affect your rate, tell him "thanks, but no thanks," since there's a pretty good chance it will.

"Studies have shown that your credit score, education and occupation can increase rates within the same auto insurance company by as much as 200%," says Poe.

There is some encouraging news: Although they might not have a reptile as a pitchman, Poe says there are "fair" insurers who value a person's driving record and years as a customer more than their FICO score. "Customers might have to spend a few extra minutes to find them," he says.

Gina Roberts-Grey is a regular contributor to WalletPop.com

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Joseph Lamarca

This is a discriminatory class action law suit waiting to happen. What about debt free people with a credit score of zero? Who get this rates jacked because we aren't in love with debt. A good credit score merely means that one loves debt. Debt is dumb. Serial stupidity brings only more stupidity.
Thank god my insurance company doesnt check credit score (4autoinsurancequote.com), so I don't have to care about this shiii

January 27 2014 at 4:31 PM Report abuse rate up rate down Reply
Dereck

Do yourself a "HUGE FAVOR" and carefully read this:

The 21st Century Act: Final Amendments to Regulation CC Section:
"Prohibits" reimbursement of Credit, Loan, and Finance Balances to a "Bank Entity" leaving only "Nonbank Consumers" able to receive reimbursement, as specified on Pages 85 and 86.

The 21st Century Act states on pg. 85 and 86 that "Only Nonbank Consumers can suffer losses and File for
Re-credit or Re-claim on any Accounts under the Federal Reserve System" also “Any Second or Third Party Presenters utilizing a Banks Documentation, Contracts and/or Agreements to seek Claims shall be considered to be that Bank under the Rules and Regulations”, the Expanded Definitions also includes Credit Cards and Home Equity Lines of Credit.
Also on Pages 100 and 101 "In any Financial Claims the Indemifying Bank (Parent Bank) must be Identified".

(Left-Click to Search Link)
21st Century Act: Final Amendments to Regulation CC http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

This Federal Law signed January 1, 2006 makes it "Fraudulent" and therefore "Illegal" for the 3 Major Personal Credit Reporting Agencies: Equifax, Experian, and TrasUnion to allow the Banks and the Banks "Third Party Presenters" to place any claim of "Negative" or "Potentially Negative" Accounts on your Personal Credit Based upon the fact that they have no "Legal Grounds or Claim" to the Money.

This is an "Unfair Practice" that diminishes our Financial ability to support ourselves and adversely affects our ability to gain work in many areas which breaks "Antitrust Laws".

These Rules also back claims of: "Aiding and Abetting" Racketeering and Extortion (of Finance Accounts and Personal Credit Reports), Pandering (of Credit and Loan Accounts, and Conspiracy to wit), Theft, Fraud, Federal Mail Fraud, and Telephone Harassment. Also "Threatening of the U.S. Financial Infrastructure", which is a "Capital Crime".

In order to engage the Federal Trade Commission to act against this injustice we must File many Claims, as these Reports must be Filed by a large number of people in order for the Federal Trade Commission to pursue
"Legal Action".

(Left -Click to engage Email Address)

antitrust@ftc.gov

This is way easier than "Occupying Wall Street"!

March 11 2012 at 6:20 PM Report abuse rate up rate down Reply
Nina

Great article, here are several tips from me on how to get cheaper car insurance:
- Use insurance comparison sites like: ---EliteCarInsurance.info--- . Once you register you'll get free quotes from a lot of insurance companies.
- Ask for group discount.Get as many insurances as you need from the same company.
- Always stay insured.If you cancel your plan even for several days, some companies may consider you as high risk and you may need to pay more next time.
- Car Security Devices.Any extra security measures you take to deter thieves from stealing your car will further decrease the risks you pose to the insurance company.
- Good driving records.That will definitely lower your price.

---EliteCarInsurance.info---

January 12 2012 at 4:45 AM Report abuse rate up rate down Reply