Is this you? You are a very careful driver, always wear your seat-belt, haven't gotten a traffic ticket since you were 17 and thought that doing donuts in the middle of a busy thoroughfare was "fun," generally follow the speed limit, and are courteous of other drivers on the road. So, your insurance costs should be at about a bargain-basement level, shouldn't they?
Unfortunately, no. Careful driving is certainly a big factor in how much you pay for insurance, but now there's something else that may influence how much your car insurance costs: Your credit score.
Yep, that's right. Now, in addition to having to worry about your credit score if you want to apply for a car loan, take out a mortgage, or get a credit card, you may also have to pay attention to what your insurance company thinks of your credit score. Although not all carriers use credit scores to determine what your auto insurance quote should be, this is becoming an increasingly popular practice. In fact, a recent survey showed that approximately 92% of insurance companies use credit scores or other credit related information when they underwrite new insurance policies. Why?
Does irresponsible behavior with money mean irresponsible behavior on the road, too?
It's probably not a surprise that most consumers strongly disagree with insurance companies' practice of using their credit scores to determine coverage eligibility and price; the Consumer Federation of America's recent poll found that 69% of people thought the practice wasn't fair.
Insurance companies increasingly disagree. While critics of this new trend may feel that using a supposedly unrelated credit score to determine what the premium and terms for a particular customer's insurance policy should be, insurance companies feel that if you pay your bills responsibly and are financially on top of things, you're going to be a responsible driver, too. And if not? Irresponsible financial behavior can also mean irresponsible behavior on the road, they surmise, thus making you a greater risk as a driver. The National Association of Independent Insurers points to research that illustrates how people who are financially responsible are responsible in other areas of their lives as well, including in driving behaviors.
A disturbing trend, given the current state of the economy?
One problem with this is that because the economy is struggling critics feel that even responsible people are struggling to pay bills when they otherwise wouldn't. Financial difficulties may make even the most responsible of consumers suddenly become a bad credit risk. While most consumers accept responsibility for that behavior and the resulting negative impact it may have on their credit rating (and therefore on their ability to borrow money for any purpose), it in no way impacts their abilities on the road or their behavior on the road as responsible drivers. Indeed, this may simply create an additional hardship for those who are already struggling to pay for the most basic of necessities. With public transportation not readily available in many parts of the country, many have no choice but to drive - and in addition to rising gas prices and the inevitable costs of owning a car, why should insurance costs, too, go up when they don't have to?
Is there anything that can be done about it?
Aside from shopping for insurance companies that DON'T engage in this practice, you just might be able to fight back:
Get a copy of your insurance credit score
If your insurance costs are significantly higher than you expect, and your quote or price is NOT based upon your driving behavior, you can request a free copy of the credit report that was used to decide what your rate should be, something required by the Fair Credit Reporting Act. You have 60 days to request a copy of the credit report that was used in the decision, and the insurance company should also inform you of just why you were given the higher rate. If the report information was in any way inaccurate, you can dispute the inaccuracies; these generally must be addressed and resolved or verified within 60 days. Thereafter, you can request a new quote from the insurance company.