Why Credit Scoring Is Important to Auto Insurance

Many insurance companies check a credit report when a new customer applies for a policy. A Supreme Court ruling in 2007 upheld insurance companies' rights to use credit scores to determine auto policy rates.

Expert Insight

On their webside, Nationwide claims studies support their use of credit scoring to evaluate auto insurance risk. However, they do not cite specific studies.

Effects

Auto insurance companies not only have the right to use credit scoring, but also can legally not inform consumers they received a higher rate due to their credit record.

Theories/Speculation

Credit reports are harder to change than driving records and therefore are a more solid indicator of financial risk, according to Joseph Annotti, a spokesman for the Property Casualty Insurers Association of America.

Considerations

Consumer groups note the insurance industry's use of credit scoring is unfair, especially in hard economic times. Some people with a poor credit report did not act financially irresponsibly, notes Chi Chi Wu of the National Consumer Law Center.

Benefits

Those with good credit will likely experience savings on car insurance.

References

• USA Today: Bad Credit Can Inflate Car Insurance Premiums
• Nationwide: Car Insurance Premiums