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Insurers use credit scores to price car insurance
Auto insurance companies now think your credit score is an important indicator of whether or not you are a safe driver. Some say it carries more weight than your driving record.
More than half of all auto insurers are believed to use credit scoring in setting insurance rates. A spokesman for Allstate Corporation says it helps them keep the cost of insurance low and allows for a more fair underwriting structure.
Consumer advocate groups object to the practice, saying credit scores reward some groups of consumers more than others. They say insurance should be rated by the driving record, not what a person's income level might be. The Consumer Federation of America is urging Congress to rule against the practice.
About 20 states have introduced legislation to prohibit or restrict the use of credit scoring, and several have ruled that it cannot be the sole factor in premium or underwriting decisions. Arkansas has banned the practice entirely.
A driver who paid cash for everything, paid on time, and had a perfect driving record, said her insurance cost rose because she had no credit history.
Insurers say credit scoring provides a consistent, reliable tool to evaluate the risk of insuring someone, and it is not discriminatory.
A credit score is based on outstanding debt, length of credit history, late payments, collections, bankruptcies, and new applications for credit.
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