In many US states, your credit rating could send your auto insurance into the stratosphere. A startling paper by Consumer Reports finds that insurance companies are using poor credit scores to get more money out of customers. But what exactly are they doing? How? And is there anything you, as a consumer, can do? Read on.

Credit Scores

Credit scores are compiled using a variety of data about a person, including on-time bill payments, number of accounts (and how long they’ve been open), and credit use. By law, certain factors such as race, religion, and marital status cannot be used against you in determining these scores. Still, there is strong correlation between credit score and socioeconomic status, and it raises many people alarm’s that insurance companies would prey on disadvantaged communities in this way.

Auto Insurers and Credit Scores

Auto insurance companies have been using these scores since the 1990s. No is saying how exactly they use the data to factor things in–insurers are notoriously tight-lipped about their methods, leading to much hostile speculation and distrust–but companies do acknowledge the practice.

Protests

Three states–California, Hawaii, and Massachusetts–have banned the practice. Consumers are often angry when they find out their credit scores are influencing their insurance rates, but there does not seem to be much they can do. The recent and aforementioned Consumer Reports finding may stoke some outrage, but as with most insurance-related topics, this subject may remain esoteric and out-of-reach for many American to understand, much less to argue and fight against.

Managing Your Score

If you can’t beat ‘em, join ‘em. Insurance companies have a lot of power to do as they please, and large scale change is unlikely to come any time soon. Working within the system may be your best bet. If you are worried about the effect your credit rating is having on your insurance rates, the best thing you can do for now is probably just to improve your credit rating. Here are a few ways to do this:

  • Get a credit card, don’t use it too often, and make your payments on time. This may seem obvious, but it’s the meat and potatoes of the whole operation. If you use your credit card wisely, and make your payments on time, you get good credit. Companies trust people who pay their bills.

 

  • Pay your bills on time. See above. Paying ALL of your bills on time makes you look very good in the eyes of insurance people. Don’t wait for a shut-off notice to send that gas check in; there’s more at stake than a hot shower.
  • Keep yourself organized. This will make the previous suggestions much easier. Switch your bills to autopay. Know what you owe. Get rid of subscriptions you don’t use.
Staff (63 Posts)