Crackdown On Insurance Companies That Check Credit Histories

Over the last several years, many people have been decrying the increasing number of goods and services that are dependent upon one’s credit rating.

While it used to be the case that poor credit just meant you’d have trouble getting a loan or credit extended to you, nowadays many are finding themselves turned down even for employment on the basis of their credit history.

One of the most egregious examples of credit history being used as a basis for discrimination to come about recently has been insurance companies using credit scores to calculate the rates they assign to each of their clients. Luckily, this is one example of discrimination that will be ending soon, as state insurance commissioners across the country are denying insurance companies the right to raise rates on the basis of a low credit score.

Michigan led the charge on this assault against the insurance companies by issuing a stark denial to seven different companies who had applied for the right to raise rates on people whose credit histories were poor. Ken Ross, the Michigan state insurance commissioner, said that he chose to issue the denials because relying upon credit scores to set insurance rates was a highly problematic standard that mostly resulting in rates being artificially inflated for little reason.

Obviously, the core concern at the heart of this issue is the reality that credit ratings have nothing whatever to do with an individual’s ability to safely drive a car. Given that the purpose of an insurance company is to cover liability in the event of car accidents, many have argued that the polling of credit scores was actually illegal, and this denial by the state commissioner may well be the first salvo against the unfair practice.

Indeed, the battle is currently before the courts in Michigan, with insurance companies taking their grievances to the governor, Jennifer Granholm, after she called for lower insurance rates to be issued throughout the major urban areas of Detroit. Ross indicated that his decision was intended to show support for his side of the issue, even though the battle has yet to be decided in court. It wouldn’t be surprising to see countersuits in a battle that is destined to rage for many months to come. For the time being, however, drivers with low credit scores are safe from rate hikes.

But what about the bigger picture? What does this mean for individuals who are finding themselves the subject of discrimination because of their credit ratings? First of all, it offers a precedent, a ruling that can be pointed to to highlight the unfairness of biases against low credit scores in matters unrelated to finance. With such a precedent in place, it won’t be surprising if insurance companies drop any attempts to raise rates in the near future.

With one battle won, the road remains long, however. In the meantime, it’s best to focus on lowering one’s credit score by making sure that all current payments are made on time, and that you follow up on all repayments to make sure that they’re accepted and that your creditors are making positive reports to the three major credit agencies.