Black marks do not look good on any credit history, especially yours. You will need to pay higher insurance premiums to get insurance cover for your car or home, compared to your neighbour with better credit history. Even if you are a responsible home owner or a good driver, you will still have to go through the ordeal. It feels unfair, and it is so.
According to a newspaper analysis, a poor credit report, on an average, costs about 35% more when you are buying auto or home insurance. In many cases, the insurance rates became double for those with poor credit scores, even if the buyers had as good claim history as their neighbors.
For a long time, insurance companies have maintained that credits scores do not play a major role in deciding insurance rates. It’s time that lawmakers stood up and took notice of this practice and put an end to it. Home and auto insurance rates are already sky high and lawmakers need to know that credit scores were not designed to determine insurance risk for policy buyers.
Some insurers say, credit scores help them find out which customers belong to high risk category. There is a belief that insurance buyers with lower credit scores file more automobile insurance claims. They further state if credit scores are taken out of the equation, everyone will have to pay a higher insurance rate.
Credit scoring is not as dependable as it is made out to be and it negatively affects insurance buyers in unexpected ways. For example, when credit limits are reduced by credit card companies, your debt percentage goes up for not fault of yours. Low income customers are more vulnerable to sudden jump in insurance rates caused by their credit scoring. The state of California has already banned the use of credit scoring in determining insurance rates for policy buyers. The process of credit scoring has many uses, determining insurance rates is not one of them.
