Credit
To maintain or improve your Credit score, the credit bureaus recommend that you pay your bills on time, don’t open “too many” new accounts in a short span of time, keep credit balances low relative to your credit limits, don’t open credit accounts you don’t intend to use, and pay off credit cards rather than moving the debt to cards with lower rates. Shop for the credit terms that best meet your borrowing needs without posing undue financial risks. Maintain low credit balances, especially on revolving debt (credit cards).
A credit report is a list of your credit accounts including credit cards, home mortgages, auto loans, student loans, and other lending activity, as well as financial information, such as bankruptcies, tax liens, etc. 
Credit reports are used by lenders and creditors to decide whether to grant you credit and how much. Insurance companies consider credit worthiness, along with other underwriting factors, when determining whether or not to assume a risk and if so, what should be the premium for the coverage. Landlords often consider someone’s credit history before renting them an apartment. Prospective or current employers may also avail themselves to your credit file. And, of course all those companies that mail you unsolicited credit offers want to know your status.
A credit score (FICO) is a number developed from a computer model or mathematical algorithm based upon data taken from an individual’s credit report. The 3 digit score is derived from an elaborate formula using information such as the ratio of debt to account limits, bankruptcies, tax liens, judgments, number of inquiries for your credit report (Too many inquiries may suggest to a creditor that the consumer is “credit hungry” and in financial trouble.), the number of late payments, as well as the positive aspects in the credit file (the number of accounts that have been favorably paid off, etc.). The credit bureaus must notify individuals once a year if adverse information has been added to their file.
A lack of credit information can happen if you’re young and haven’t yet created a history, if you have become single or widowed and all of your previous accounts were in your spouse’s name, or if you have always paid in cash.
Some insurance companies use favorable credit history to retain a policyholder that they might otherwise non-renew because of losses. Critics of credit scoring claim that insurance practices of this kind are discriminatory. Other insurers may only use credit history if the consumer has had a number of losses within a certain time frame. Insurers cannot use credit history to settle a claim for a fixed amount.
The Fair Credit Reporting Act does not require insurance companies to get a consumer’s permission to look at his or her credit history, but it does require insurers to notify consumers when adverse action, based upon credit history, is taken against the consumer. Credit history is not used by any of the companies to deny a claim or determine the amount of a claim payment.
If your credit has adversely affected your premium on a newly purchased policy, the insurance company must send you a notice. Since a credit score is just a snapshot of your credit information on a particular day, your score could change at any time there is a change in your credit activity or a creditor’s report to a credit bureau. If your credit score is causing you to pay higher premiums, ask if they will reevaluate you when you improve your credit.
The Fair Credit Reporting Act requires that incorrect or incomplete information on a credit report be corrected by the credit reporting agencies free of charge. Some credit repair firms falsely promise (for a fee) to get accurate adverse information deleted from your credit file. That doesn’t happen. Only time removes accurate negative items from your file (10 years for bankruptcy, etc.). Increase credit lines only with good credit behavior and proven ability to repay.
Length of credit history, amount of time you’ve been in the credit system, the number of credit lines open all play a role in the interest you are charged. Access to credit history is considered an invasion of privacy and providing unique identifying information, such as a social security number, potentially exposes consumers to identity theft.
The question of whether the use of credit information in car insurance underwriting and rating conforms to insurance laws is hotly debated since the correlation between credit history and loss history is difficult to prove. Inaccurate credit entries can result in insurers setting higher rates for consumers than should justly be applied. An inaccurate credit report can be due to the absence of accurate information as well as the presence of inaccurate information. Ratings based on credit information determine the price you pay for insurance coverage at the time of application or at renewal. Latest surveys show that 80% of insurance companies use credit information in their underwriting algorithms.
Order a free, yearly credit report at www.annualcreditreport.com. If there is an error in your report that does not pertain to your credit history, send identifying information such as social security card, a copy of your driver’s license, passport, etc. If you can’t settle the issue alone or need help, there are nonprofit credit counseling firms that may assist you.
At your request, the credit reporting agencies must send a notice of any corrections to any creditors that have ordered your file in the past 6 months. For some customers, credit history may be the sole factor that keeps them from getting the best rates on loans and insurance.
Back to the top of Credit