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rmhop said:why do they need credit checks for cell phones? same concept... Not exactly, cell phones you typically are doing post paid, so they give you services then you pay. That's credit.
Car insurance is typically prepay.
They are accessing their risk: Did you buy the car outright or do you have some sort of loan for it (I'm actually not sure on this one..) Do you have alot of debt? Might you be looking to screw them over with some sort of insurance fraud stuff? Paying bills on time should mean you are sorta of responsible and more likely to be more cautious/safer driver. That kinda of stuff...
rzyzzy said:The reason some states won't allow it is because it's not true. It's simply another thing the insurance companies do to increase their profits at your expense.You should refrain from making definitive statements without evidence. Insurance companies have proven, through statistical studies, that risk is correlated with credit score. That's why regulators let them use credit in the rating algorithm.
And rates, on average, aren't increased by using credit scores. Rates are simply adjusted corresponding with risk. People with high credit scores actually pay lower premiums due to their lower risk. It's a good thing.
I wish insurance companies could use credit scores in my states. Why should I pay the same rate as a deabeat when numerous studies have shown that people with bad credit are more likely to file claims?
nycll said:Which states don't allow it?I'm interested in this too. Years ago I worked for a company programming software modules that calculated auto insurance quotes for people (based on the insurance carrier's publicly disclosed rating tables and formulas that they filed with the state's DOI), and it was pretty common for them to factor in credit scores. I don't remember any state specifically prohibiting this.
To answer the OP's question, I think the reasons why an insurance company would be interested in a credit score are pretty obvious. A credit history is one of the only ways that you can quantify how "responsible" somebody is.
Its part of how they charge you more money if you have poor credit score just like you have to pay higher for everything else when you have poor score.
barefool said:rzyzzy said:The reason some states won't allow it is because it's not true. It's simply another thing the insurance companies do to increase their profits at your expense.You should refrain from making definitive statements without evidence. Insurance companies have proven, through statistical studies, that risk is correlated with credit score. That's why regulators let them use credit in the rating algorithm.
And rates aren't increased by using credit scores. Rates are simply adjusted corresponding with risk. People with high credit scores actually pay lower premiums due to their lower risk. It's a good thing.
I would advise you not to make statements without evidence as well. I had a personal experience with this, and my rates went up - the reason given by my agent at the time was that my credit score had dropped.
The only thing the insurance companies have proven is that they are greedy, opportunistic, and anti-competitive, unless the government holds them back.
It's six pages, so I've pasted a relevant section below. Bottom line - you've been fed some kool-aid. Since you believe your score is fine, this issue doesn't matter. When it affects you, then it will become a problem.
See the facts below....
The Attorney General’s office finds it problematic for three reasons: 1. There is little or no transparency in the insurance industry. Consumers have no way of knowing which specific factors are being used to determine their insurance premiums. In the case of a “credit score,” these numbers may be based on a credit report, but are not identical to those reports. Simply reviewing a credit report will not offer a consumer a clear picture of what factors an insurance company has used to set that score. 2. There is little rational and independently verified correlation between a poor credit rating and a poor driving record. 3. Credit reports are notoriously error-ridden. Using an inaccurate report to determine an insurance premium is unwise and unfair.
If you don't agree with this, that is your perogative - however for every correct and accurate credit report, there is a gamer willing to do "bumpage" or the usual creditboard tricks to falsely increase their scores. And more than a few people, including myself have been dinged for things we didn't do, and we've had NO LUCK in removing inaccurate derogatory information from our reports.
wiredspider said:rmhop said:why do they need credit checks for cell phones? same concept... Not exactly, cell phones you typically are doing post paid, so they give you services then you pay. That's credit.
Car insurance is typically prepay.
They are accessing their risk: Did you buy the car outright or do you have some sort of loan for it (I'm actually not sure on this one..) Do you have alot of debt? Might you be looking to screw them over with some sort of insurance fraud stuff? Paying bills on time should mean you are sorta of responsible and more likely to be more cautious/safer driver. That kinda of stuff...
Sorry to go off topic...
Not really. Cell Phones, Cable/Dish, Local Line etc, are also post paid. When you sign up they charge you for first month sometimes two months of service. If you read your bill carefully you will notice that the bill is for the next month of re-occurring charges + extra services used.
rzyzzy said: 2. There is little rational and independently verified correlation between a poor credit rating and a poor driving record.
If there was high correlation between credit scores and driving record then there would be no reason whatsoever to factor both into figuring out insurance rate.
"The Cure" Auto Insurance in PA and NJ is a non-profit insurer and advertises that they only write policies based on claim/driving history and other factors such as credit, education, marital status, children, etc. do not factor into pricing. It's an interesting concept from a non-profit.The CURE
The auto insurance business is highly competitive. If you don't want your credit checked, refuse to give consent and find an auto insurer that doesn't factor in credit scores. There are companies out there that don't use credit scores.
rzyzzy said: The only thing the insurance companies have proven is that they are greedy, opportunistic, and anti-competitive, unless the government holds them back.
So if they are greedy, opportunistic, and anti-competitive, why are there so many insurance companies competing against each other? Start you own and see how far you get charging low credit score drivers the same premium as financially responsible adults. When the assets dry up, you probably would make a socialist car insurance company, increase all premiums, drive out the high credit score people, and collapse.
rzyzzy said: The Attorney General’s office finds it problematic for three reasons:
The Michigan Attorney General's Office...
rzyzzy said: 1. There is little or no transparency in the insurance industry. Consumers have no way of knowing which specific factors are being used to determine their insurance premiums. In the case of a “credit score,” these numbers may be based on a credit report, but are not identical to those reports. Simply reviewing a credit report will not offer a consumer a clear picture of what factors an insurance company has used to set that score.
Most consumers are dumb. Insurance companies usually disclose on their websites what factors they use and they all make sense.
Age - young and elderly drivers file more claims Marital Status - single drivers file more claims Intelligence - students with low GPAs and those without higer education file more claims Driver Education - young drivers with no driver's ed course file more claims Sex - male drivers file more claims Driving Habits - drivers who drive more file more claims Occupation - certain workers file more claims Geography - drivers in population dense areas file more claims DMV records - drivers with tickets/points and previous accidents file more claims Driving Experience - drivers with a short length of driving file more claims Equipment (alarm, ABS, airbags, onStar) - drivers without these file more claims Color of Car - drivers of black and red cars file more claims Sports Car - drivers of these file more claims Top on Car Theft List - drivers of these file more claims Low on Car Safety List - drivers of these file more claims Race - drivers that are black...just kidding I believe this is considered discrimination but you can discriminate on every other characteristic but this and sexual orientation it seems.
Low Credit Score - drivers with lower credit scores file more claims!
Donald Hanson of the National Association of Independent Insurers agrees, "Research indicates that people who manage their personal finances responsibly tend to manage other important aspects of their life with that same level of responsibility and that would include being responsible behind the wheel of their car or being responsible in maintaining their home."
On top of that one may be more distracted who has a poor credit score, care less about life, or just be less intelligent. On the other side there are people who have poor credit who are surely excellent drivers. Let's face it, if someone can't pay a bill that has over a month of notice, how can the insurance companies expect them to handle an accident situation with a duration of one second.
rzyzzy said: 2. There is little rational and independently verified correlation between a poor credit rating and a poor driving record.
rzyzzy said: 3. Credit reports are notoriously error-ridden. Using an inaccurate report to determine an insurance premium is unwise and unfair.
If you don't agree with this, that is your perogative - however for every correct and accurate credit report, there is a gamer willing to do "bumpage" or the usual creditboard tricks to falsely increase their scores. And more than a few people, including myself have been dinged for things we didn't do, and we've had NO LUCK in removing inaccurate derogatory information from our reports.
I'll agree there is potential for errors, but there is no way to falsely increase your scores. They are not LAZY and pursued legal ways to get erroneous information removed. If you had no luck then file a law suit or start your own socialist insurance company.
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