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Low Credit Score Rockets Auto Insurance Cost

By Sally Maison
Published: Saturday, September 26th, 2009

A low credit score can propel increase of a vehicle insurance premium, a practice which alarms consumers all throughout the United States. Consumer advocates say that this practice is unfair and has no basis. However, insurance providers say that they do this only to prevent further increase in premiums.

Low Credit Score Rockets Auto Insurance CostState regulators all over the country have been receiving complaints from policyholders whose premium rates have increased for apparently no reason at all. These holders say that they have not been engaged in any accident throughout their previous terms, kept the same residence, and have filed no claims. They were puzzled by changes in the price, yet they can do little about it as companies insist that this increase is justifiable.

Upon inquiry, policyholders found out that this drop in credit scores contributed largely to a rise in premium rates. The reason? Insurance providers say that the lower a driver’s score, the more likely he is to meet an accident. Any consumer will find this absurd and advocates say that this practice should be stopped. However, insurance companies say that if they are prohibited to include credit rating in determining individual premiums, overall price rates will go up by 70 percent. They also presented graphs and statistics which back up their claims that debt-troubled individuals are more risky drivers.

However, that is not the worst part yet for automobile owners. There are some who were denied coverage simply because of credit scores. These drivers knew later on that their credit rating is on top of the list when it comes to determining a premium. Previously, drivers thought that their driving history and personal status, such as age and occupation, were primary factors in determining cost of their insurance. However, safety regulators revealed that the score of a consumer ranks among the top three in computing cost of any policy.

Driver advocates say that the practice is not fair, especially during the recession. This economic crunch pushed the foreclosure figures up and the number of defaulted credit cards and loans. They characterized this practice of insurers as an “overkill” which makes financial burdens heavier.

Lawmakers in large states have been pushing bills to prohibit insurers from tying up credit scores with insurance rates. Meanwhile, consumers can do more than just wait while the legislations are still being debated. Experts advise drivers to shop around for better policies to save on their auto insurance costs. The high level of competition in the insurance industry assures auto owners that they will find a more hospitable insurance office.

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