Wednesday, July 14, 2010

1 in 4 consumers now have poor credit scores: likely to pay more for insurance

As the economy continues to flounder, credit scores are plummeting. According to a leading producer of credit scores, FICO inc., more than 43 million people now have a credit score of 599 or below.

Today, most insurance companies use your credit information and other factors to create what they call an “insurance credit score.” The lower your score, the more you could pay for auto and homeowners insurance.

The lesson: be very careful how you use your credit. The following actions could cause your credit score to go down and your insurance rates to go up:

• Consolidating credit cards, lowering your credit card limits, or canceling your cards.
• Buying large ticket item with 12-months deferred interest.
• Using or opening a store card to get a 10 percent discount on a purchase.
• Opening a new credit card to get frequent flyer miles.

Kreidler pushed for a ban on insurance credit scoring last year, but the legislation was unsuccessful. He still supports a ban, but short of that, believes people should educate themselves on the industry's growing reliance on credit scores.

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