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Credit Rating Can Affect Insurance Premium

Practice May Be Illegal if Disclosure Is Lacking

May 19, 2003
Your credit rating can affect a lot more than you may think. Increasingly, insurance companies are factoring in credit ratings as one of the elements they use to set rates for new and existing customers. Credit card companies may jack up the interest rate on existing accounts because of adverse entries on your credit report.

Insurance Credit Scoring • Consumers Dispute FTC Report on Insurance Credit Scoring • Secret Scores Influence Auto Insurance Rates • Industry Defends Credit Scoring • States Study Insurers Use of Credit Scores • Credit Rating Can Affect Insurance Premium • Insurance Companies Scrutinizing Customers' Credit Reports --- • More about Insurance ...

While controversial and, to many, disasteful, such practices are not, by themselves, illgal. However, if the insurance company or credit card issuer fails to send the consumer a notice of adverse action under the Fair Credit Reporting Act, there may be a violation of that federal statute.

The FCRA requires a company that uses a credit report to take an adverse action (raising rate/premium amount) to give the consumer written notice, thus giving the consumer a fair opportunity to examine the credit report and dispute any entries.

It has been alleged in a class action filed in Florida in March that homeowners were hit with PMI policy premium increases after a check of their credit report, without being given the required legal notice. Consumers, like David of Clarksville, have told us of similar increases on their homeowner's policy.

Motorists can also be hit with premium increases because of their credit report, even though it's hard to see how this relates to their likelihood of having an accident. It happened to Erin, though her insurer apparently stayed within the letter of the law by informing her of the reason for the increase. Many others aren't so lucky and thus don't have a chance to contest the increase.

If this has happened to you, please let us know about it by filing a consumer complaint.

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