AUTO INSURANCE AND CREDIT REPORTS, What does one have to do with the other?

Question

Does any one but me think its bull that one can be refused auto insurance or pay a higher premium because their credit score may be lower than some other guys. Why on earth are we letting car insurance companies get buy with this? Even auto insurance companies having access to our creit history makes no sence and is a further invasion of our privacy. This practice should be outlawed.
Again what does credit score and auto insurance have to do with each other?

kendrickflorida
A credit score is not based on just weather one has paid his bills or even on time. I for example probably have 40 different credit avenues. I owe lots of money to everyone but these accounts have been active 20 to 25 years, I have never been late for even one payment in all those years. I have the same auto insurance company now at 49 and started when I was 16 so thats 33 years. they have the ordassity to say to me that your credit score is lower than say Bill Gates so you will have to pay more even though you have been our customer for 33 years and are a good driver and had no claims. you think you get the same rate as bill gates? probably not. Again I say what does car insurance have to do with Credit score.

Answer 1

You are correct, many insurance companies are indeed checking credit reports and refusing people, or charging more for those whose credit isn't good.

Personally, I think this practice should be outlawed. I don't believe that bad credit makes someone more likely to file a claim, or a fraudulent claim. This was the claim the industry used to get permission to do that.

It's also become a common practice to run a credit check for a job too!

So..you get a little behind on your bills and what happens? First your interest rates rise, then your car insurance goes up, then you can't get a better job.

How the heck are you supposed to get out of the hole if they keep piling dirt on the sides so the hole gets deeper!

Good news may be on the front - There is already a lawsuit in CA challenging the credit issue as discriminatory towards minorities who are more likely to have poor scores. State Farm has already stopped checking credit in that state. If we can see more suits filed, maybe this issue will go away.

Grrr.....
you've touched on a pet peeve!

Oh..and you don't really have to give everyone your social security number. Only businesses that are tax related, like your employer, your bank and investment companies. Technically you can refuse to give it to anyone else, including credit card companies and lenders, but they then have the right to refuse to do business with you. Again..maybe if more people resist, change will happen.

Answer 2

Unfortunately this is the new trend of insurance companies. The company I work for doesn't pull a credit report, but a consumer report. The reason that companies have started doing this is becuase they have been able to show/prove a direct corrolation between the likely-hood of a claim and the score. The lower the score the more likely a claim, therefore, the higher the rates. As you said, this isn't always fair, becuase there are alot of people out there that have lower score, but are very good risks, however, the companies adjusters and risk management people have been researching this for years and have a valid point. The state insurance commisioners would not allow them to base rates off information like that if there weren't strong evidence to justify the increases in rates.

Answer 3

There is a statistical corrolation between low credit scores (note, NOT reports, but scores) and claims paid out. The lower the score, the more frequently there are claims, and the more is paid out on claims.

Just like 16 year old single males pay more than 40 year old married males - the former have more claims. Why doesn't matter, it's not relevant. I don't know if it's even been researched.

The companies do NOT have access to your credit history - they use third party vendors like Equifax, to get a number. If you have any questions about why your score is XYZ, they also give you the telephone number to the third party vendor they used, so you can get a copy of your credit report at no charge, to figure out what you need to do to fix the problem.

It's no use asking WHY there is a corrolation between claims and low credit scores - all the companies need to know is that it is there, and they also need to prove the relationship between the claims & scores when they file their rates with the state insurance department. The why doesn't matter at all, frankly.

Why do women live longer than men? It doesn't matter. Women will still pay less for their life insurance. The why doesn't matter - just the corrolation.

Answer 4

It's very unlikely that you would be refused insurance based on a credit report. It is possible that you might pay a higher rate if your credit is really poor. Most states have no laws on this at all. A few explicitly allow it, and a few explicitly prohibit it.

Not all insurance companies do this. Those that do claim that there is a link between credit score and insurance risk. I don't know if this is true or not, or if they have the cart before the horse on this one, but that's their claim.

Unless you are paying for your insurance in full at each policy renewal, they have a right to see your credit report as they ARE granting you credit for the monthly premiums. Even if you pay in full, the application probably grants them the right to inspect your credit report. You could strike this clause out in the application, but they'd probably refuse the application then.

The only way to stop this is with a grass-roots campaing in each state, and possibly a nation-wide campaign. If enough people contact their representatives at the state and federal level, it's entirely possible to get this changed. Or refuse to do business with insurance companies that engage in this practice and be sure to tell them why you are changing carriers.

Answer 5

The reason auto insurance companies look at credit reports is because a credit report is a good indicator of how responsible you are. Bad credit = not responsible = higher cost insurance.

It's a very practical way to determine if a car owner will cost you money.

http://www.insure-a-car.com/

Answer 6

Mbrcatz17 and Doc H are exactly right. I've been in the insurance industry for 9 yrs and they both gave you very correct information. No, it's not always fair that someone should be penalized for poor credit but like mbrcatz17 said the insurance companies do not really care WHY there is a link betwen poor credit and claims....it's the fact that there IS and this is what plays a HUGE part in a company's rates and underwriting guidelines.

Answer 7

Credit bureau's outlawed? Wow, that is revolutionary and economy destroying. A credit bureau shows your character when it comes to paying bills(nothing else, nothing about your character as a person). If you don't pay your bills, then people who extend money or service requiring you to pay your bills on time don't trust as much, requiring them to charge you more. Bottom line-- if you paid your bills on time, you would be happy to get a lower premium instead of paying higher for others who are scaming or not paying their bills. If your credit is a result of a previous medical problem or job layoff, then that is unfortunate, but everyone goes through those same problems at least once in your life and it's something you just have to live with. And credit scores are not based on race, but if you pay your bills.

Added: So, you are saying your credit is 'as worthy' as Bill Gates? No. In fact, you are actually paying less than most, so why are you complainingIf your credit is good, and they didn't pull credit, they would charge everyone the average of what everyone is paying, which would be higher for you(that's like a worker fighting for layoffs to save company money). ? Sorry, wasn't aware you were venting. Thought you were looking for the reason(answer).

Answer 8

They check credit when you apply for insurance and also check credit when you are making certain claims because if a person has problems with money, they might file a phony claim.

Bad credit is one of the many items in a fraud profile. People with high fraud profiles are more apt to do things like report stolen cars that haven't been stolen when they have fallen behing in their payments, burn their homes for the insurance money when the mortgage is behind, fake accidents, when they need money.... You get the idea.

Answer 9

Insurance companies will check your credit score to rate your policy, if you credit score is low, you get a higher rating and the opposite if your credit score is higher.

The insurance companies want to see how responsible you are when it comes to bill paying. If you are consistently late with bills or on time with payments that information is reflected in your credit score.

Answer 10

Any money owed to progressive will show on your credit report. Even though they canceled you for non-payment, there was probally still a balance owed to them. And also, progressive here (TN) charges a 10% fee for canceling a policy. Might want to find the policy and read the fine print