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Consumers: Credit Scores Shouldn’t Inflate My Insurance Costs

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Many Americans consider it more than fair for institutions that issue consumer loans or credit cards to use their credit rating when weighing the decision on whether to extend financing, but feel less satisfied when insurance companies do the same.

The majority of consumers disagree with insurance companies using a credit score to determine eligibility for auto coverage and set the terms of a policy, according to a recent survey by the Consumer Federation of America. In all, just 31 percent of those polled said they found that the use of a credit score to determine premium levels was either somewhat or very fair, indicating that the remaining 69 percent felt differently.

“Consumers strongly favor the use of factors related to driving, over which they have some control, in the pricing of auto insurance,” said J. Robert Hunter, the CFA’s director of insurance and the former insurance commissioner for Texas. “And they reject factors unrelated to driving over which they have little or no control.”

Unfortunately for many consumers who were adversely affected by the recent economic downturn and saw their credit ratings take a tumble as a result, some insurers engage in this practice, and that’s not the only way in which a bad credit score can have a negative effect on non-financial aspects of their lives.

In recent years, there has also been a significant increase in the amount of employers across the country who use consumers’ credit reports – they cannot legally access applicants’ credit scores, though the two documents are closely tied – to determine whether they are a good candidate for a position. Many consumer advocates say that this practice is inherently unfair, especially given the number of unemployed people nationwide who had to lean too heavily on credit during long periods without regular work. As such, a number of states across the country have passed laws banning this practice.

Fortunately, consumers can take a number of steps to improve their credit standing in a relatively short period of time. Making sure all payments are made on time and in full, as well as cutting outstanding debt balances can be extremely helpful in this regard. Further, checking to make sure there are no errors on their credit report may be equally beneficial.

Image: TheTruthAbout, via Flickr

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