1 in 4 consumers in the state have poor credit scores

Published 1:18 pm Tuesday, July 13, 2010

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. Credit scores range from 300-850. Insurance Commissioner Mike Kreidler warns consumers to be careful when using credit – it could increase your insurance costs.

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.

“We warned people last year – if the economy failed to rebound, we would see people’s credit scores dive,” said Kreidler. “Many people still out of work are struggling and relying more on their credit cards to pay bills. Unfortunately, those with the largest drops in their credit scores could pay as much as 8-15 percent more for insurance.”

Kreidler pushed legislation last year to ban the insurers’ use of credit information. Many legislators, consumer advocates and those impacted by the practice of credit scoring supported Senate Bill 6252, but the legislation failed reach the senate floor.

Kreidler still supports banning credit scoring but believes short of a ban, consumers need to be educated on how simple credit choices they’re making in today’s economy – choices that sound reasonable to most – could cost them higher insurance rates.

“Today, your insurance credit score can make up as much as 50 percent of your auto and homeowners rates,” warned Kreidler. “Be careful of:

• 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.

Any of these choices can cause your rates to go up and your credit score to go down. Insurance credit scoring is inherently unfair – especially in today’s economy. But by being a smart consumer and understanding its impact, you can protect yourself from higher rates.”