Bad Credit? Check Your Mirrors

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It may sound silly (or unfair, whichever way you look at it), but more often than not, bad credit is having an impact well beyond high interest rates and unapproved credit and loan applications. Credit card debt or a poor credit score can make things like finding a job or a home extremely difficult.

Your landlord and your employer were probably all up in your credit report and score at one time or another.

You may already have known that. And certainly you should. What you might not know is that other entities that keep their customers liable for monthly payments, like utility and cell phone companies, will also check your credit. It’s logical to distrust someone to pay their bills when you find out they’ve had past troubles doing just that.

The most confounding of all effects of a bad credit history though is not with a utility company or a future employer – it’s with insurance companies. It’s a good idea to keep an eye on your credit score and your insurance premiums; they are indeed influencing each other.

Like any salesman, there is a preconceived notion that insurance companies are calculating and shrewd and not at all interested in selling insurance but in selling you on the sale of that insurance. As David Mamet taught us in “Glengarry Glen Ross,” it’s truly an art of convincing.

That’s just one thing to make you a little wary when shopping for insurance. Knowing that a credit score below 720 could likely affect your insurance rates in a negative way is a whole different ball game.

Auto insurance, homeowner’s insurance, and renter’s insurance will all look to your credit score as an indicator for how much they should charge for insurance coverage. Meaning that if your auto insurance rate is going to be generalized by something that has nothing to do with driving, a nice and quiet premium won’t necessarily be because of a perfect driving record.

It appears that financial irresponsibility somehow presumes more accidents and more filing of insurance claims; it supposedly predicts risk. The assumption seems completely false, but according to the Insurance Information Institute there is a correlation – those with worse credit boasted claims 53 percent higher than the average.

But then what about people whose credit has been destroyed because of identity theft? Medical bills? Job loss? Divorce? These people aren’t financially irresponsible or bad drivers; they’re just unlucky. Penalizing those already scaling mountains of debt and escalating interest rates with higher insurance premiums feels like pouring lighter fluid on an already blazing fire – what’s the point?

At least many states understand this. According to the Property Casualty Insurers Association of America, 26 states have adopted laws protecting consumers from unfair insurance scoring. Hawaii is the only state completely disallowing all usages of credit reports in determining auto insurance rates.

The Fair Credit Reporting Act (FCRA) states that consumers must be informed when an “adverse action” is taken on the basis of a credit report. But recently a few car insurance companies have been sued for not notifying their customers when their insurance rates have increased because of a credit report. And since nearly 8 in 10 credit reports contain serious errors, according to a survey by the U.S. Public Interest Research Group, letting these errors also affect your insurance rates is a serious problem.

The best way to prevent a bad credit situation from increasing your insurance rates is to stay on top of your credit score. With free credit report and score sites like Quizzle.com, frequently checking your score is now easier than ever. Doing this helps you to be sure your accounts are in good standing and also dispute and correct any errors before your insurance rate increases.

Also, keep your debt in check and pay your bills on time!

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