Low Credit Scores Can Cost You More Money For Your Insurance Policies

     A negative credit report can cost you serious money in more ways than you would probably think. It seems like a seriously unfair practice, but it is more or less legal for insurance companies to factor in your credit score when determining your insurance premiums. Auto and homeowners insurance companies are now taking a closer look at their customers' credit ratings, the idea being that consumers with poor credit are actually more likely to file insurance claims.

     The credit score offers a certain amount of "predictive value," as an insurance executive put it recently. The companies do not necessarily bother to speculate how or why credit would affect a driver's accident record or a homeowner's propensity to file damage claims. The insurers, it seems, are merely interested in identifying risk factors -- not explaining them.

     A friend of mine has taken up an old-fashioned letter-writing campaign in order to raise awareness of this questionable practice.  Her family, she tells me, is unable to pay the steep new rates they are suddenly being charged for homeowners insurance, despite the perfect track record the family has of paying premiums on time over the course of eight years with the same agency. After suffering a bad back injury at work, my friend’s husband was unable to work for a year and had to file for bankruptcy. That is all it took for the company to decide the family was now a much larger risk factor to file a homeowner’s insurance claim. Brilliant.
 
     My friend’s primary goal in trying to raise awareness was to see that her state legislature eventually took a look at her case and those like it in order to determine the ethicality (or lack thereof) in this practice. It seems, though, that the issue did come before legislatures in most states within the last few years, though most either took no action or set in place measures that allow the practice to continue, as long as credit ratings is only one of several factors being considered in determining premiums.

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     Written by Josh Michaels who is a freelance writer. He survives on very little income and carefully considered financial decisions. This combination has allowed him to have fun, travel the world, and state a retirement account - all without the pleasure of holding a full-time job. He can be reached at joshmichaelsmoney@hotmail.com.