| Insurance
companies are increasingly using credit reports to determine
auto insurance rates. The credit scoring
systems
classifies consumers as preferred, average,
or high-risk class - this can impact what rate an insurance
company charges you.
Where you live determines what information companies can
be gathered and how the information can be used.
In states where it's allowed, insurance
companies plug
basic credit information (such as bankruptcies, missed payments,
the number of cards you have and how much activity they see)
into formulas that also take into account your accident history,
years you have been driving, geographical factors where you
live, your age, gender and assorted other relevant facts
about you.
The formulas assign varying levels of importance to these
based on rather complex data such as the company's loss history
and how statistically important the factors have been shown
to be for that company. (For example, males are more likely
than females to get into accidents. How much more likely depends
on still other criteria, such as what kind of cars they drive.)
From a mathematical maze of interlocking facts and levels of
importance comes a risk level - and a rate plan - for each
insurance consumer.
Many states are required to tell consumers what the top several
factors are that affect their auto insurance rates, but your insurer may not
even understand the exact significance of some of the numbers,
since they often come from outside sources. If you're interested
in finding out if credit was used to determine your auto insurance rates,
contact your insurance carrier.
It's a good idea to get your credit
checked periodically. If you find errors, you can quickly
take steps to fix
it
before it hurts you. So, what if you're insured, and your
credit takes a turn for the worse? You'll probably be all
right. For one thing, companies
who know and trust you may be reluctant to (or may not be
allowed to) raise your auto insurance rates for no other reason than a credit
score.
And credit scores generally don't vary dramatically over
short periods of time.
Also, insurance companies fall into one of two camps: those
that use credit in rating only new business, and those that
favor using credit scores in periodic updates and adjustments.
About
80 percent of companies fall into the "new business
only" category.
Whether or not you support the use of credit in insurance
rating plans, it's wise to regularly review your credit report.
And know your rights - Under the Fair Credit Reporting Act
(FCRA), consumers have the legal right to obtain a free credit
report if an "adverse action" has been taken as a
result of a credit report or score. (The act was passed to
hold credit reporting agencies accountable to standards of
confidentiality, accuracy and proper use of credit information.
For more information on your rights under FCRA, go to www.ftc.gov/os/statutes/fcra.)
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