Recently, there has been growing debate over whether or not car insurance companies should be able to base people's car insurance rates on their credit. There are good arguments on both sides of the debate. The "yes" people say that basing car insurance rates on credit allows car insurance companies to more accurately predict risk, and thus makes rates lower for everyone. The "no" people say that bad credit does not make someone a bad driver, and even if many people with bad credit are bad drivers, then that doesn't mean that good drivers with credit problems should be punished. After all, they have enough trouble paying higher interest rates and climbing out of debt - their problems should not be compounded by higher car insurance rates.
But even the people on the "yes" side would have to agree that you should be notified if your bad credit results in higher car insurance rates. The Fair Credit Reporting Act (FCRA) says that people have the legal right to be notified when they are declined for credit, employment, or insurance, on the basis of their credit history. But the Act is unclear on whether or not car insurance companies have to notify you if your bad credit results in higher rates. Several state attorneys general say that this is a bogus loophole that needs to be closed.
But even the people on the "yes" side would have to agree that you should be notified if your bad credit results in higher car insurance rates. The Fair Credit Reporting Act (FCRA) says that people have the legal right to be notified when they are declined for credit, employment, or insurance, on the basis of their credit history. But the Act is unclear on whether or not car insurance companies have to notify you if your bad credit results in higher rates. Several state attorneys general say that this is a bogus loophole that needs to be closed.
Arkansas and Oregon Lead the Way
The attorneys general of Arkansas and Oregon have both filed suits against a leading car insurance company for failing to disclose "adverse actions" taken against customers based on their credit. Five other states have joined them in seeking national clarification on the matter. But this begs the question, "Why would car insurance companies not tell you that your credit was impacting your rates?"
The answer is simple: Every car insurance company treats its customers' credit differently. A study by Consumer Reports showed a nearly forty percent difference between how two car insurance companies viewed the same bad-credit customer. And that's two car insurance companies that actually use credit reports - some don't. In that case, you could save up to forty-seven percent on your car insurance rates!
The answer is simple: Every car insurance company treats its customers' credit differently. A study by Consumer Reports showed a nearly forty percent difference between how two car insurance companies viewed the same bad-credit customer. And that's two car insurance companies that actually use credit reports - some don't. In that case, you could save up to forty-seven percent on your car insurance rates!
Don't Wait for the Courts - Find Out and Shop Around
The wheels of justice move slowly, and it may be awhile before a definitive ruling about informing people how credit impacts their car insurance rates becomes law. The good news is that you don't have to wait. First, ask your car insurance company whether or not they use your credit file to determine the rates you pay. If they say yes, then ask if you are being "rated" adversely. Ask for their answer in writing. If they say that they don't use consumer credit files, then ask for that statement in writing. If they refuse to provide you documentation or, worse yet, say "I don't know," then you definitely need to shop around. Chances are you can save quite a bit. In fact, it never hurts to shop around, so regardless of their answer, you might want to spend a little time at carinsurancerates.com looking for a better deal. What do you have to lose but the high monthly premiums?
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