House Democrats Look to Ban Use of Credit Score when Setting Car Insurance Rates
Your credit score matters, particularly when you try to get a loan. Those with the best credit scores tend to qualify for the lowest interest rates. If your score is weak, then your interest rate will be higher, and you will ultimately pay much more over the life of the loan.
Your credit score also matters when it comes to getting car insurance. This might be news to you, but it is true: insurers will factor in your credit score when setting your insurance rates. This means that someone who has financially struggled in the past will get hit with higher car insurance rates than someone who has strong credit.
But House Democrats might change all that, if a newly-proposed law becomes reality. According to the Detroit News, Representative Rashida Tlaib is sponsoring legislation that would prevent insurers from using a driver’s credit score when setting rates.
Why Insurance Companies use Your Credit Score
Insurance companies have fired back, calling the law well-meaning but ultimately counterproductive. According to them, disallowing the use of credit scores will cause everyone’s insurance premiums to rise and will undermine the accuracy of underwriting.
Insurers already use the following information to determine insurance rates:
- Previous driving history
Since the 1990s, insurers have also decided to use credit history, granting lower insurance rates to those with strong credit. The insurance industry has defended this practice by stating that studies have established a correlation between credit-worthiness and the likelihood of filing a claim. Because those with good credit probably won’t file a claim, their insurance premiums are lower.
Just how important is your credit score? Considerable. Consumer Reports has found that a driver who had good credit paid $68-526 more than a driver with the best credit. Indeed, they found that having poor credit could increase a driver’s premiums more than having a moving violation, and those with poor credit paid more in premiums than someone who had excellent credit but with a DUI conviction on their record.
Will a Bankruptcy Cause Your Insurance Rates to Increase?
There is no guarantee that the law will pass, though it has the support of key backers in Congress, including Congresswoman Maxine Waters. In the meantime, you might be considering bankruptcy to help manage some unsecured debts, like medical debt or credit card debts.
Will filing impact your insurance rates?
Probably. However, we encourage drivers to consider the full costs of not filing for bankruptcy in the first place. You will likely still feel incredible stress and pay so much money in interest, late fees, and penalties. These amounts probably dwarf any increase in your auto insurance.
For help deciding whether filing for bankruptcy is right for you, please call 888-813-4737. The credit repair attorneys at Nowack & Olson help debtors in South Florida tackle their financial problems by filing a Chapter 7 or Chapter 13 bankruptcy.
We can go over your financial situation and help you consider the pluses and minuses of filing for bankruptcy. To schedule a free consultation, call the number above or send us an online message.