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Slade column: Credit scores and related factors can raise the price of car insurance

February 19, 2017 GMT

Many people who have been buying car insurance for years probably think they have a good idea of the key factors that make premiums rise or fall.

I counted myself in that group, until I read some of the fine print in my latest bill, and did some research.

Accident claims, of course, affect auto insurance rates, as do driving records and having teen drivers in the household. But credit reporting and other consumer data?

Well, yes. It turns out some insurance companies have been adjusting rates for many years using secretive calculations based on consumer reporting — a controversial practice that pro-consumer groups have long taken issue with.

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And it’s not as simple as looking at credit scores. Insurance companies collect a variety of consumer reports, for all covered drivers in a household, and can use that information to adjust rates.

Consumer Reports took a deep look at this in mid-2015 and found that credit scoring can have a larger impact on auto insurance rates “than any other factor.”

That was particularly true in South Carolina, the magazine found, for people with poor credit. In neighboring North Carolina, someone with great credit and a driving-while-intoxicated conviction would pay far more than someone with poor credit and a clean driving record, Consumer Reports said.

But in South Carolina, the report concluded, the average insurance cost for an adult driver with a clean driving record but poor credit was $1,129 higher than for a driver with a DWI conviction and excellent credit.

A month after the Consumer Reports special report, the industry’s Insurance Information Institute issued a report defending the use of credit-related insurance pricing.

“An insurance score is a numerical ranking based on a person’s credit history,” the trade group said in the August 2015 study. “Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims.”

A few states, including California, don’t allow the use of credit scores in auto insurance pricing, but most do. One challenge for consumers is, it’s hard to tell what credit-related behavior might cause rates to rise.

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“Cherry-picking about 30 of almost 130 elements in a credit report, each insurer creates a proprietary score that’s very different from the FICO score you might be familiar with, so that one can’t be used to guess the other reliably,” Consumer Reports said.

That was certainly my experience. As regular readers of this column may know, I pay close attention to my credit score, which is in the “excellent” range.

So imagine my surprise when my latest auto insurance bill said: “Based upon consumer report information, your premium is higher than it would have otherwise been if State Farm had not used consumer report information.”

Finding out why has been a challenge, although the bill gave some hints, referencing the frequency with which I take advantage of credit card offers and my use of multiple cards. For me, the financial rewards from using credit card offers to my advantage will far outweigh any auto insurance increase, but it’s still a frustrating puzzle.

If you find yourself in this sort of situation, there are steps you can take.

You can request from LexisNexis the reports that were the basis for your rate adjustment. They should be referenced on your premium notice, along with contact information.Know that if “certain life events” including divorce, a serious illness or death of an immediate family member may have harmed your credit, that’s something to discuss with your insurance agent. Shop around. There are more than 140 companies writing auto insurance in South Carolina.Review your credit reports for possible mistakes. You can get free copies once every 12 months, online at annualcreditreport.com, or by calling 877-322-8228.

“I think the best defense is to shop around,” said Russ Dubisky, executive director of the Columbia-based S.C. Insurance Institute. Insurers use different factors, and those factors are weighted differently.”