Tuesday, July 17, 2007

Is Credit Usage to Blame For High Auto and Home Premiums?


If you own this car, feel free to skip this post.

This morning, I came across an interesting article from the Money section of CNN.com. Sarah Max, a frequent contributor to Money Magazine, discusses how your credit usage could be to blame for high auto and home premiums.

Per Ms. Max.

“In most states they (insurance companies) are allowed to use your credit information to formulate premiums - and in June the U.S. Supreme Court decided that your carrier doesn't need to tell you if your credit has caused you to pay more.

In concurrent cases against Geico and Safeco, the Justices unanimously agreed that the companies were not wrong in charging certain poor-credit customers more without notifying them.

The impact of the decision: "You are not going to know if your credit score is costing you," says Harvey Rosenfield, founder of the Foundation for Taxpayer and Consumer Rights.

How insurance premiums are determined is a recipe long kept secret from consumers. Some 90 percent of home and auto carriers use a score based on credit data as part of that recipe, according to risk-assessment firm Fair Isaac, known for its FICO credit score.”

The article then dives into further detail about the process insurance companies go through to determine rates. More importantly, however, Ms. Max discusses the importance of having a strong credit history.

According to Ms. Max, one of the best ways to put your credit score in the brightest possible light is to frequently check your credit report for accuracy . Regardless of who determines the credit score, the original data comes from reports established by the three major credit bureaus. To check your credit report now, click here.

In terms of insurance credit scores, insurance companies put a large emphasis on prompt bill payment. As well as a way to improve credit, paying back bills on time is the best way to avoid high auto and home premiums.

The article is definitely worth checking out for anyone with established credit or if you're in the process of reaching that point.

On a different note, Experian Consumer Direct recently conducted a study that determined the average credit scores of citizens in all fifty states. With an average score of 721, the citizens of Minnesota lead the nation when it comes to credit. Texas might be home to this year's NBA Champions -- the San Antonio Spurs -- but the Longhorn State currently resides at the bottom of the credit score standings -- owning the nation's lowest score, 666. For all you Texans out there or citizens of any state who want to improve their chances of catching Minnesota next year, click here for more ways to strengthen your credit.

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