Insurance companies are increasingly using credit as a function of calculating risk for personal lines insurance. Insurance companies can do this because statistically they can show that credit has a correlation in claims. Several states have challenged credit as a factor in insurance rates however the courts have generally upheld credit as a statistical factor. What this means for the average insurance consumer is each company is creating greater breadth of tiering for their clients. Where a company may have had 10 to 15 rating tiers several years ago now has 50 to 60 rating tiers based in part on the credit level for each client.
Clients with lower credit scores will pay higher premiums than those with higher credit scores.
Unfortunately, this process hurts good people who pay their bills on time but have had a drop in their credit score because they took on debt due to a health emergency, lost a job, purchased a home, had a death in the family etc. I don’t see changes in this process anytime soon and I expect to see insurance carriers continue to expand their tiering structures to become more competitive in premium for those who are in the highest credit tiers. Another consideration is the older consumer who paid cash their whole lives and rarely, if ever took out credit. I realize that there are not as many of these consumers who were products of the depression era but I do occasionally come across them. They have no credit to speak of and may not be getting the best rates even though they are the most frugal of consumers.
Have you ever wondered who is really saving all that money in price comparisons shown on TV commercials and in the mail you receive? Those rates shown are based on the highest tiers of which the vast majority of the public do not qualify. For now, credit is here to stay and the best way to influence your insurance premiums is to protect your credit and credit rating. Be sure to request your free annual credit report each year and review it carefully. If you find any inaccurate information report it immediately. You can access your free credit report at: