Why Does My Credit Have Anything to Do With Car Insurance?
In WV and Ohio, companies may use credit within limits, because it predicts claims on average. Nobody has clearly shown why. Here's what the rules say.
Jay Parrack
WV & OH ONLY
"I've never missed a car insurance payment. Why does my credit have anything to do with what I pay in West Virginia or Ohio?"
I know it feels wrong that your credit has anything to do with your car.
The short answer
Credit affects car insurance because companies have found that credit history, on average, helps predict who will file claims and how much those claims will cost, and both West Virginia and Ohio allow its use within limits. It isn't about whether you'll pay your premium. Nobody has clearly proven why the connection exists.
Who leans on credit the least?
If it were up to me, this would be a lot simpler. We want the best rate for you with your credit exactly as it is today.
Every company decides how much weight credit gets. If your credit has been through a rough patch, that difference can matter a lot. We can compare 13 companies and find the ones that lean on it least for someone in your spot.
Yes, I'm asking for the call. You can't fix your credit by Friday. You can find the company that holds it against you the least.
WV & OH ONLY
Does credit really predict car accidents?
On average, the data says it predicts claims. The Federal Trade Commission studied this in 2007 and found that scores effectively predict the number of claims people file and the total cost of those claims. It's an older study, but it's still the main federal look at the question.
Then why does it work?
Honestly, nobody knows for sure. The FTC's full report went through the theories, such as money stress making someone a less attentive driver, or someone in a tight spot being more likely to file a small claim. It concluded that it hasn't been clearly established why scores predict risk.
The FTC also says companies aren't using these scores to guess whether you'll pay your premium. So "I've never missed a payment" is a fair thing to say, but it's answering a different question.
Is that fair?
People disagree, and you can decide for yourself.
The FTC was careful to say this works on averages and doesn't describe every person. People can have bad marks on their credit for reasons that have nothing to do with driving. A hospital stay. A divorce. A mistake on the report.
Can a company turn me down just because of credit?
Not on credit alone. West Virginia's Bulletin 20-12 says insurance scoring can't be the sole basis for declining personal auto or homeowners coverage, and being placed with an affiliate company doesn't count as a decline.
Ohio's rule says credit can't be the sole basis, without looking at other factors, for an underwriting decision, a total premium or an adverse action.
What can't they count against me?
In West Virginia, the scoring model can't count as a negative:
- Collection accounts with a medical industry code
- Multiple inquiries from insurance, mortgage or auto finance companies within 30 days
In Ohio, a credit scoring method can't count as a negative:
- Credit inquiries you didn't start
- Credit inquiries relating to insurance coverage
Do they have to tell me if credit hurt me?
Yes. In Ohio, the notice has to be in writing within 30 days of the adverse action. In West Virginia, it has to explain the reason clearly enough that you can tell what the company based it on.
Read that notice closely if you get one. Most people throw it away, and it's one of the few times a company tells you what it saw.
Is there anything I can do if life just went sideways?
Ask. The NAIC's consumer article suggests asking your insurer to reconsider your premium after something extraordinary like a catastrophic event, job loss or serious illness. The answer may be no. It costs nothing to ask.
Also, don't assume a low price means you've solved the problem. Insurance ads leave a lot out, and so do cheap policies.
Your credit is what it is today. Let's find out who minds it the least.
WV & OH ONLY
Next in the series: Part 13, Is an Insurance Score the Same as My Credit Score?
Ready for real numbers?
Tell me what's going on and I'll find out what each company will offer you. West Virginia and Ohio drivers only.
