Car insurance companies using credit ratings to price premiums

Reader question:

I hear there’s some controversy over car insurance companies using credit ratings when making premium rate quotes. What’s going on? Who’s winning?

Allison

Good question.

Many people consider the use of credit ratings when deciding car insurance ratings to be an unfair practice, and this has created quite a bit of controversy in some states. It’s said that the practice affects those lower on the income ladder and already deep in debt more often than not, without having any relation to their actual driving history. Many consider this unfair, and I can see why. It’s usually the people who have lower income that are struggling with paying their car insurance as it is, and may not even have health insurance, and so is the group that’s more likely to sacrifice their car insurance payment to make room for other more necessary payments. And when car insurance is required by state law, this can be very dangerous for them. Just increasing the payments makes it even more difficult, and it’s sort of a cycle of defeat.

The issue has come up in many states, but for the most part,the car insurance companies seem to be winning. Texas didn’t like it, but ruled that it did not have the right to meddle in the way car insurance companies decide their prices. Florida ruled that it would investigate the companies and see how they are using this new manner of rating, to make sure that it isn’t unfair. Recently, in Nevada, a bill that would have banned the use of credit ratings was voted down, but another bill was passed that required the car insurance companies to supply more information when a credit rating affects a score badly.

Cheers,

Fashun Guadarrama.

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  • Ezra

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  • Amy

    Car insurance companies are now checking credit scores so keep a good credit standing. Just my two cents :)