Will Credit Checks for Insurance Finally be Going Away?

Credit checks often bring higher rates for those with bad credit.

The House of Representative steps in to change the way credit scores affect our insurance premiums.

Ever wonder why your insurance premium jumped up on your renewal, even though you had no change in your driving record? Or get to a renewal where you believe that the premium should go down, but instead goes up? Well, you may have your credit report to blame.

For years, the insurance industry has pulled credit reports on us as one of the rating factors for our insurance premiums. So even though your driving record has improved, if your credit score has dropped your insurance could still go up.

Why Are Credit Checks Used Anyway?

Insurance companies operate under the belief that people with lower credit scores are more likely to file a claim. They also believe that they are more likely to fraudulently cause a claim to help relieve financial stress.

Unfortunately, they may have a point. In 2007, the Federal Trade Commission confirmed that people with lower credit scores had double the amount of property damage claims compared to those with higher credit scores (ftc.gov).

Are Credit Checks Used Everywhere?

Nope, there are states that do not allow insurance companies to pull credit reports on the resident’s in their states. Credit checks for insurance coverage are currently banned by California, Massachusetts and Hawaii.

Oddly, these are three of the states that have the most interesting and sometimes confusing insurance laws. But if you live in one of these states, you don’t have to worry about your credit report being used to determine how much you will pay for insurance. Think of it as kind of like a reward for having to deal with all of their other insurance laws in your state.

For the rest of us, our credit still plays a part in our insurance premiums. People with better credit usually pay less than those with moderate credit, and a lot less than those with bad credit.

How Are Credit Checks Going to Go Away?

This summer the House of Representatives introduced a bill that would prevent insurance companies from being able to pull a credit report for anyone, in any state (onlineautoinsurance.com). They are trying to protect citizens from being charged more for insurance just because they were late on paying other bills.

Will it work? Not sure yet.

But if you want to voice your opinion about credit checks being used to determine your insurance premium, contact your state’s representative.