Poor Credit Affects Auto and Home Insurance
Poor Credit Affects Auto and Home Insurance
The majority of consumers know that their credit history is affected by their payments on homes or cars, but only a few understand that it actually affects their insurance policies. Most companies that offer auto and home insurance use credit score as a factor in deciding whether to give out or renew an insurance policy, and the cost of premiums.
In the perspective of insurance companies, there is a relationship between credit scores claims. That is, more claims are filed by drivers and homeowners with bad credit histories than those with good credit histories.
Especially under the Fair Credit Reporting Act, insurers must inform their customers when something in their credit report rejects them of insurance, affects their rates to go up, or alters their coverage one way or another.
According to Bob Hartwig, president of the Insurance Information Institute in New York, low credit scores having a correlation with higher losses are supported by facts and are undeniable. In fact, using consumer credit has made it possible for insurers to price the risk of policies in a more accurate way. Moreover, it has also enable insurers to correctly price policies for risky drivers.
However, consumer advocates disagree with using credit reports in pricing insurance policies. According to them, the practice is unfavorable to those with low incomes and is unjust to those whose credit score might low due to difficulties like sickness, unemployment or divorce.
In addition, consumer advocates approximate that roughly one third of consumers know that insurance companies use their credit reports. Birny Birnbaum, executive director for the Center for Economic Justice, said that insurers do not take actions to inform consumers that their credit reports are being used.
All of these concerns show the significance of accurate credit reports. While errors and problems with credit reports can affect many aspects consumers’ lives, the greatest impact is in insurance.
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