Proposed Law Stops Auto Insurers Using Credit Scores To Set Rates

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Another Use for Your Credit Score

You probably know that your credit score affects the interest rates you’ll pay for credit cards and loans. Did you know that your credit score could also affect your auto insurance rates?

It can in all but three states (California, Massachusetts, and Hawaii). Those three states have banned credit-based insurance scoring – the use of credit scores in determining auto insurance premiums. Rep. Rashida Tlaib (D-MI) would like to make that ban nationwide.

Rep. Tlaib is introducing a bill that would prohibit auto insurance companies from using a client’s credit history to set rates for premiums. She claims that the practice discriminates against low-income Americans and compounds ethnic and racial discrimination.

We Use It Because It Works

Insurers use credit-based scoring for one basic reason – it accurately assesses risk. Separate studies from the University of Texas and the Federal Trade Commissio…

Do Low Credit Scores Raise Your Insurance Premiums?

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Your credit score affects many aspects of your financial life. It affects your ability to qualify for loans and credit cards, and the interest rates that you’ll pay if you do qualify. It may affect your credit card limits, rental fees or deposits, utility services, and cell phone/cable bills.

Can your credit score also affect how much you pay for insurance? According to a new study by WalletHub, it can. The WalletHub study focused on the connection between car insurance rates and credit scores, and how they change by state.

The insurance industry calculates credit-based insurance scores built on information in your credit report that is relevant to your likelihood of filing an insurance claim. Credit-based insurance scores have proven to be a decent predictor of fewer accidents, and therefore fewer claims.

Insurance companies are banned by state law from using credit-based insurance scores in three states (California, Massachusetts, and Hawaii), but in …

Raise Your Credit Score, And Pay Less For Insurance

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A poor credit score makes your financial life difficult in a number of ways. You receive poorer interest rates and terms on credit cards, it’s harder to qualify for mortgages, and, “When it comes time to get insurance, maybe your insurance premiums will be a little more expensive because you have a low credit score,” says Millennial Money Expert Stefanie O’Connell.

Why would credit affect your insurance premiums? Insurers have to determine the premiums you pay based on the collective risk factors for that particular field. Greg McBride, Chief Financial Officer of Bankrate.com, includes insurance companies in this assessment: “They’re looking for ways to evaluate your risk, and creditworthiness is one of those metrics.”

Insurance companies typically don’t use your credit score directly, but they may incorporate your credit score and other relevant aspects of your credit history into a credit-based insurance score – an analogue that focuses not just on the ability …