Tuesday, October 30, 2007


You always use your turn signal and observe the speed limit. The only ticket you've ever gotten was for an expired parking meter. You should be eligible for lower car-insurance premiums than that bozo who cut you off this morning is, right? Not necessarily.

If your credit report is blemished, you might not get the lowest insurance rates, despite your spotless driving record. And as a result of a Supreme Court decision last week, your insurer doesn't have to tell you that you're not getting the best rates.

The high court overturned a 9th Circuit Court of Appeals ruling that said the federal Fair Credit Reporting Act requires insurers to notify customers whenever their credit history prevents them from getting the best available rate.

Insurers argued that credit histories are just one of many factors they use to set rates. They also contended that the ruling would have required insurers to send out millions of notices to customers to avoid costly class-action lawsuits.

For about a decade, most insurers have considered a customer's credit history when setting rates, says Joseph Annotti, a spokesman for the Property Casualty Insurers Association of America. Annotti says research has shown that drivers with poor credit are more likely to file insurance claims.

A credit report "is a solid predictor of risk," Annotti says. "People can get tickets taken off their record, DUIs get changed into running a stop sign -- there are lots of ways to play with your motor vehicle record. It's less likely for a person who is inherently financial irresponsible to, all of a sudden overnight, change their behavior."

Consumer groups disagree. The insurance industry's contention that people with damaged credit are high-risk drivers is a "pretty disturbing moral hypothesis," says Chi Chi Wu, of the National Consumer Law Center. Many people have poor credit because of divorce, job loss or serious illness, she says. "They're not bad people. They're people who have fallen on hard times."

In addition, credit reports are "notorious for errors," Wu says. Identity theft could also damage an individual's record, she notes.

In November, Oregon voters defeated a measure that would have barred insurers from using credit histories to set auto and home insurance rates. Still, 26 states have adopted a model law that requires insurers to notify consumers that their credit history might affect their rates. The law also bars insurers from refusing to insure someone based solely on the individual's credit history.

The model law also encourages insurers to take into account "extraordinary life events," such as a catastrophic illness or the loss of a spouse, when evaluating a consumer's credit history.

Know your score
Consumer groups contend that a notification requirement would encourage people to check their credit reports more frequently. Most consumers aren't aware that their credit histories can affect their insurance rates, says Scott Shorr, a lawyer in Portland, Ore., who represented the plaintiffs in the insurance case.

Now, though, "If you want to know whether there's some inaccuracy in your credit report that's resulting in your paying more for insurance or credit generally, then you're going to have to check your credit report yourself," says Scott Nelson, an attorney for Public Citizen, a consumer-advocacy group.
How to protect yourself:

*When applying for insurance, ask the insurer what factors will be considered in determining your rates. Insurers won't tell you how they weigh them, but the company might tell you the factors it considers when reviewing a potential customer's credit report, Annotti says.

For example, he says, some insurers are interested only in major credit events, such as foreclosures and bankruptcies.

Annotti adds that the use of credit reports in setting rates can benefit drivers with excellent credit. "A lot of times, a good credit history can offset a spotty driving record," he says.

*Monitor your credit reports regularly for errors. You're entitled to a free copy of a credit report from the three credit-reporting agencies -- TransUnion, Equifax and Experian -- once a year.

You can order your credit reports at www.annualcreditreport.com or by calling 877-322-8228. You'll have to pay extra to get your credit score.

If you find errors in your credit report, contact the credit agency that issued the report. The agencies are required by law to investigate disputed items.

*Beware of companies that claim they can "repair" your credit report
You can find more information about credit-repair scams at the Federal Trade Commission's website, www.ftc.gov.

To suggest future columns, e-mail: sblock@usatoday.com.

Warning signs of a credit-repair scam
*The company wants you to pay upfront, before it provides any services.
*The company fails to tell you your legal rights and what you can do for free.
*The company tells you not to contact the credit-reporting agency.
*The company suggests you try to invent a "new" credit identity -- then, a new credit report -- by applying for an Employer Identification Number to use instead of your Social Security number. It's a federal crime to lie on a loan or credit application, to misrepresent your Social Security number or to obtain an Employer Identification Number from the IRS under false pretenses.

(c) USA TODAY, 2007

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