Your Credit And Auto Insurance Score – Is It Costing You A Fortune And You Didn’t Even Know?

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Your Credit And Auto Insurance Score – Is It Costing You A Fortune And You Didn’t Even Know?

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The business of credit scoring can be a rather confusing one for consumers to navigate and understand. Most people are aware of the fact though that their credit score can affect their ability to get loans of all kinds – everything from a small personal loan or a credit card to a larger loan like a car loan or a mortgage. What they may not realize though is that these days when it comes to car insurance credit scores are very important as well.

Why Do Car Insurance Companies Care About Credit Scores?

Over the last several years car insurance companies have been giving an increased amount of weight to a person’s credit score in order to come up with a premium level for their car insurance. This comes as a surprise to many people. Surely they should care about a good driving record and a safe car, not whether or not a drivers pays their credit card bill on time very month? And what possible link could there be between the chance that their home will damaged and their credit score? And how do they come up with this auto insurance score for you?

Insurance companies do still care about all of that of course but their new reliance on credit scoring comes down to insurance companies love of statistics. According to the insurance companies there is research that suggests that a person who is very good with their finances – it has a good credit score – is more likely to be more responsible in other areas of their life including more careful when they are out on the road behind the wheel of a car.

Insurance Scores Explained

To determine how to price their policies the insurance companies now use what is referred to as an insurance credit score. Actually most use two insurance scores for each consumer – one for car insurance and one for home insurance. Most of it is calculated according to the information on your credit report in the case of home insurance and in the case of auto insurance your driving record and the information on your credit report are both taken into account. These scores are then added to what is called a CLUE report. These reports are then the ones used by insurance companies to calculate insurance premiums and they also contain information about employment history and past residence information and even your grades in high school or college!

Getting Your CLUE Report

If you will be buying a new car insurance policy soon you may want to know just what is on your CLUE report and just what your insurance credit score is, in the same way as you would want to know what your current credit score is before you apply for a mortgage.

It is possible to gain access to a copy of your CLUE reports free of charge. You can request copies of both the auto and the home report by going to personalreports.lexisnexis.com. The problem is, all you will see on these reports are claims histories. You are not shown your insurance credit score or any information about how your credit score is affecting your insurance score. What that actually is is something that only the insurance company knows unless they take an adverse action action you (deny you coverage or increase premiums) because of it in which case federal law states that it must be provided to you.

Insurance Scores and Controversy

The fact that insurance companies use an auto insurance score related to people’s credit to help them set premium rates has been a matter of great controversy. Not everyone who has a poor credit score is a poor financial manager. A personal crisis like a job loss or illness can have a serious impact, albeit a temporary one, on a person’s finances and their ability to pay all their bills on time. Therefore many people, including a number of politicians, feel that the use of credit scores to help calculate insurance scores unfairly targets lower income individuals.

Some states have actually banned insurance companies that operate in their state from using credit scoring at all when calculating insurance premiums. Hawaii, Washington, Massachusetts and Maryland all ban the use of credit scoring for most types of insurance policy and California bans its use for automobile insurance. Other states put limits on how much weight an insurance company is supposed to be allowed to put on insurance scores.

Consumers all over the country do have the right to complain about unfair treatment and inaccurate entries on their CLUE reports and have their claims investigated. Many people begin by speaking with the insurance companies themselves but that does not always get them very far. At this point the best course of action is for the consumer to contact their state insurance investigator’s office and ask them to begin an inquiry.

Improving Your Insurance Credit Score

Making an effort to improve your credit score should have a positive impact on your insurance credit score as well. You should also order the free CLUE reports that the law says you are entitled to once a year and go through them carefully to look for mistakes. In the case of an auto CLUE report for instance there is often a section that is headed ‘Possible Claims’ that are based only on a search of last name and address. So if yours is a common last name you may end up having a claim listed that was actually made by someone else once living at the same address and be paying top dollar for your car insurance because of this mistake!


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