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Insurance And Your Credit Report (Part II)
If I don't know my score, and my score varies from company to company and day to day, how will I know if my credit is affecting my insurance purchases?
The FCRA requires an insurance company to tell you if they have taken an "adverse action" against you, in whole or in part, because of your credit report information. If your company tells you that you have been adversely affected, they must also tell you the name of the national credit bureau that supplied the information so that you can get a free copy of your credit report. FCRA defines “adverse action” to include “...a denial or cancellation of, an increase in any charge of, or a reduction or other adverse or unfavorable change in terms or coverage or amount of, any insurance existing or applied for, in connection with the underwriting of insurance...”
Examples of an “adverse action” include:
- giving the consumer a limited coverage form
- not giving the consumer the best rate
- not giving the consumer a discount, or
- giving the consumer a surcharge
In addition, most state laws require insurers to provide clear and specific reasons for any refusal to issue, cancellation or non-renewal of an insurance policy. A reason such as “bad credit score” may not be in compliance with most state laws. Insurance companies differ in how and when they notify consumers about an adverse action. For example, notification could come either verbally or in writing from either the agent or the insurance company, and notification could come at the first policy period or at each renewal. The best way to know for sure if your credit score is affecting your acceptance with an insurer for the best policy at the best rate is to ask.
How can I improve my credit score if I have been adversely affected?
First, you must find out what "factors" caused your credit score to decline. The agent or company should be able to tell you the top "reason codes" (factors) that resulted in your score. In addition, you must find out what weighted number each of these factors is given to fully understand how your credit score may be improved. Insurers and credit scoring model developers suggest the following ways to improve your credit:
Don't try to "quick fix"' your credit overnight or you could end up hurting your score.
Instead, understand that the most important factors generally are: late payments, amounts owed, new credit applications, types of credit, collections, charge-offs, and negative items such as bankruptcies, liens and judgments.
Create a plan that will improve your credit over time. Pay your bills on time (pay at least the minimum balance due, on time, every month). Keep credit balances low, especially on revolving debt like credit cards.
Apply for new credit accounts sparingly.
Keep at it. Your snapshot will improve over time if you make changes now and continue to improve. If you show good credit behavior over time, your credit score may improve as a result.
What can I do if I suspect that my credit report contains inaccurate or erroneous information that is adversely affecting my credit score?
If your insurance company has taken an "adverse action" against you as a result of your credit, you're entitled to a free copy of your credit report from the credit reporting bureau they used. However, since the three national credit reporting bureaus do not share information with each other, it is a good idea to obtain a copy of your credit report from each of them because each report may contain the same or different errors and correcting errors on one credit report may not fix the errors with the others. You may have to pay a nominal fee (probably less than $10 for each report). Under federal law, your are entitled to a free copy of your credit report if you have been denied credit or insurance, if you are on welfare, if you are unemployed or if you are a victim of identity theft.
If you find errors in your credit report, advise the credit bureau. In addition, you should immediately notify your insurance agent and company and ask if these errors will make a difference in your insurance purchase and whether the insurance company will defer using your credit information until the inaccurate or erroneous information is corrected.
Don't wait until the matter is resolved by the credit bureau. Small errors may have little or no affect on your credit score, but significant errors could cause the insurance company to disregard the score and possibly reverse the adverse action.
The credit bureau will contact the reporting entity (bank, Credit Card Company, collection agency, court clerk, etc.) to verify the information. The bureau must investigate and respond to you within 30 days.
If the disputed information cannot be verified, or if the reporting entity agrees that the information is incorrect, the credit bureau must remove, complete, or update the information. Also at your request, the credit bureau must send a notice of the correction to any creditor that has checked your file in the past six months.
If the reporting entity verifies that the information is indeed correct, the credit bureau will not remove the information from or correct the information on your credit report. However, the FCRA permits you to file a 100-word statement explaining your side of the story, and the reporting bureau must include your statement with your credit information each time it's sent out. Make sure your insurance company has a copy of your statement, and ask if they will take it into account.
Once the errors are removed or corrected, it's a good idea to obtain a new copy of your credit report several months later to make sure the incorrect or erroneous information hasn't been reported again.
Most consumer groups suggest that you get a copy of your credit report from all three credit bureaus once a year to make sure there are no errors or to correct them before they become big problems. The three national credit bureaus are:
Where can I go for help with credit problems?
If you can't resolve your credit problems alone, or need additional assistance, there are non-profit credit counseling organizations that may be able to assist you. In addition, non-profit counseling programs are sometimes operated by churches, universities, military bases, credit unions, and housing authorities. You can also check with a local bank or consumer protection office to see if they have a list of reputable, low-cost financial counseling services.
Some credit repair firms promise, for a fee, to get accurate information deleted from your credit file. Be wary of those entities because accurate information cannot be deleted from your credit record. You have the same access to credit reporting agencies that credit repair firms do and you are entitled to dispute credit report items for free.
Will a less than perfect credit score haunt me forever?
The best way to find out if and when your company will re-evaluate and re-tier or re-assign you is to ask. Some insurance companies look at your credit periodically and will place you in the appropriate company or rating tier based on your current information. If you were originally charged a higher rate because of your credit and you improve your credit over time, you may receive a lower rate the next time the company looks at your credit. Other insurance companies look at your credit only at the time you first apply for insurance. Even if you improve your credit history, the company will not take your improvement into account and you will continue in the higher-priced company or rating tier. Conversely, if you are already in the best priced company or rating tier, you would not be downgraded should your credit history deteriorate.
Where can I get more information?
Ask your insurance agent or company if they have educational material about their use of credit.
Search the Internet, but be sure the information you access deals specifically with use of credit by insurance companies.
Contact the Federal Trade Commission for information about the FCRA or their consumer brochures on credit.
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