January 20, 2007
Bad Credit Score Results in Higher Insurance Rates
This past week the U.S. Supreme Court heard oral argument on an interesting Fair Credit Reporting Act issue. In the case of Geico vs. Edo, the Supreme Court will be deciding whether insurance companies can be liable for punitive damages if they fail to notify customers that the customer's credit score has led to higher rates.
Regardless of what the Supreme Court does, I think that the bigger issue for consumers relates to how insurance companies use your credit history in setting the price that a consumer pays for auto or homeowner's insurance.
According to the AJC, drivers with the worst credit histories will pay almost double the price paid by a driver with very good credit. However, Georgia law permits the insurance companies to keep secret the formulas they use to decide what credit factors impact insurance premiums.
All of this begs the question of what relevance bad credit has on a driver's likelihood to be involved in an accident.
If you thought that a bad credit score only affected your ability to finance a house or a car, think again. Even if you are not using credit, your cost of insurance will be affected by a bad credit history.
This credit score/insurance cost link serves as yet another reason for you to check your credit reports at least once a year. Since most credit reports have some errors, there is a good chance that you can improve your score simply by challenging these errors and demanding that the credit reporting agency remove the mistakes from your report.
Finally, take a look at this interesting post I found on attorney Grant Griffith's Kansas Creditor Harassment blog about specific steps you can take to remove an old bankruptcy from your credit report.
Technorati Tags: credit reports, bad credit and insurance costs, Geico v. Edo, Fair Credit Reporting Act, attorney Grant Griffiths
Filed under Consumer protection, General consumer bankruptcy info, Post bankruptcy credit rebuilding by Jonathan
Comments on Bad Credit Score Results in Higher Insurance Rates »
The insurance industry trots out studies, no doubt funded and set up by their own industry people, that says people with bad credit are more likely to file a claim. Awww.. gee… they might have to actually pay up once in a while ! In my experience, people with bad credit are also driving older vehicles, they can't get a car loan for a better car, and the loss of the vehicle they DO have would be even more catastrophic. So, sure, rather than go buy another vehicle instead of fixing a damaged one, they file a claim. Those with bad credit are to suffer higher insurance rates because the more well-off would rather go buy another vehicle .. and that keeps the insurance companies from having to pay out.. something they are loathe to do.
I filed bankruptcy 2 years ago, my credit isn't good, but I didn't suddenly become a bad or wreckless driver the day my bankruptcy petition was filed.. or in the time prior to that filing. I've had a spotless driving record for over 30 years, and THAT is what SHOULD matter to an insurance company .. not what happened with my credit.
Diane,
Are you serious? Well-off people, when they get in accidents, they simply buy new cars??? You have got to be kidding. They file claims as well. If the car is a total loss, they take the money paid out and put that towards a new car, but the idea that that suffer losses in an accident, and simply throw their old car away without making a claim is ridiculous, and seems to me totally unfounded.
Perhaps people who have poor credit are less careful? It seems to be the case with their finances, and although the two (being careful with one's finances and driving careful) are not exactly correlated, there may be some nexus between them. If I had good credit, I would want to protect it. I would want to be sure that I don't get any adverse judgments on my credit (you know, that is what happens in accidents, people get sued, and if there is a judgment entered against them, it can affect credit). Additionally, I would assume that people with good credit pay their insurance bill on time. That alone is enough to deny someone coverage.
Auto insurance is not a "right." And private companies should be able to discriminate as to what type of person they wish to insure. Why is bad for insurance companies to try and minimize asymmetric information?
[...] Atlanta bankruptcy lawyer Jonathan Ginsberg writes about the use of credit scores in the insurance industry. I have always found the alleged connection between one's credit worthiness and one's safety as a driver to be spurious. Let's hope the Supreme Court sees this as a pernicious practice as well when it considers Geico v. Edo this term. [...]
These insurance scores are faulty. I was told I did not qualify for the lowest rates due to my length of credit history. That length is almost 20 years (of several credit cards). My FICO is 800 or so. I have only had a house and car loan for several years so maybe they don't count anything but that??
Its all bogus.