According to an article in the Dallas Morning News, drivers and homeowners in North Texas with poor credit ratings pay an average of 35 percent more for insurance coverage than those with good credit – even when driving records and recent damage claims on homes are identical.
The article said:
“Rates submitted by the 35 largest auto insurers show that all but two use credit history to help decide whom to sell insurance to and how much to charge. Some companies double the rates for those with poor credit scores. Among home insurers, 19 of the 26 largest companies charge higher rates for low scores, including some who charge 2 ½ times as much.”
State Farm, Allstate and Farmers – all rely on credit ratings when determining a customer’s premiums. Customers facing foreclosure and delinquent credit card payments are the most vulnerable; but also those who have suffered reduced credit limits. Some analysts note that individuals with otherwise good credit are suffering lower scores due to credit card companies reducing their credit limits. Lower debt to income ratios can lower anyone’s credit score. And it’s scenarios like this that have consumer advocates in an uproar.
But regardless of how a consumer acquired a lower credit rating, what exactly does a credit score have to do with the factors that actually affect an insurer’s bottom-line? Pretty much nothing, according to some experts. And some legislators are pushing to ban the practice of using credit scores to determine insurance premiums. In 2003, the Texas House voted to ban credit scoring in insurance, but the Senate refused to go along, and a compromise was struck to restrict use of scores. Currently, high medical debt or a limited credit history cannot influence insurance premiums. Advice: For those debtors facing delinquent credit cards, foreclosure or even bankruptcy, it may be wise to keep your insurance payments current especially if the premiums are based on your former good credit score.