The FACT Act of 2003:  Notice and Request For Public Comment On the Effects of Credit Scores and Credit-Based Insurance Scores on the Availability and Affordability of Financial Products #514719-00074

Submission Number:
Howard Wicks
Initiative Name:
The FACT Act of 2003:  Notice and Request For Public Comment On the Effects of Credit Scores and Credit-Based Insurance Scores on the Availability and Affordability of Financial Products
Sir or Ma'am, The use of credit reports in setting insurance rates is just another way to increase the bottom line of insurance companies. I pay an additional $112.00 per year on my homeowners insurance due to a 610 credit score. I have never filed a claim. I pay an additional $53.00 per month on my automobile insurance due to the same score. I have not had a ticket in 10 years. I have not had an accident in 23 years. I have never filed a claim. The 610 credit score is the lowest of the 3 credit reporting agencies. The other two scores are 640 and 660. If the highest score was used I would realize a 30 % reduction in premiums. I filed for chapter 7 bankruptcy in June of 2001. My credit scores went from 780-810 before filing to 500-540 after. My insurance rates doubled overnight. I filed because of my employer closing and thus I was unemployed for a period of time. I was living on a fixed income and this overnight increase resulted in my insurance costs rising from $900.00 avg per year to $1875.00 avg per year. These costs in relation to my income reduction to $20,000 per year raised my insurance costs from 5% to 10% of my income. I was earning $55,000 per year before my employer closed. The percentage cost of my insurance before the job loss and the bankruptcy was less than 2% of my income. The insurance companies state that the consumers with bad credit are insurance risks because of financial stressors in their lifestyle. I find it ironic that the insurance companies method of raising rates to compensate themselves for additional risk is in itself a severe financial stressor that penalizes the consumer. It has been almost 4 years since my bankruptcy. I lost everything including my house. I have become gainfully employed and have purchased a car and house. I paid 29.9% interest on the car loan which effectively doubled the amount I paid. I have now paid that off in full. I pay 7% on my home loan. I have no credit cards by my choice and never will again. I understand the reasons behind these higher rates and accept it. It makes sense when a financial institution raises rates to compensate for financial risk due to a consumers financial history. It doesn't when property insurance companies raise property insurance rates due to the consumers same financial history. The property insurance should be based on past insurance claims and driving records. The rates should not be based on whether you were 30 days late paying a credit card and your credit score was lowered or someone used your identity and destroyed your credit. These are financial issues and should be contained to a financial setting. The insurance companies have much to gain from mandatory insurance laws and then using credit scores to increase rates. They also drop your policy or decline to renew you if you file a claim. The net result is the average consumer is penalized if they have insurance by higher premiums and subject to jail and fines if they do not have insurance. The mandatory insurance laws should be accompanied by strict regulation of the insurance companies to prevent abuse of the consumers. Why should consumers be forced to pay increased insurance premiums due a financial event in their life or risk the government suspending their driving priviledges and even confinement if they cannot pay the premium? In my case it was a job loss that caused my financial turmoil. In actuality it was my lifestyle the years prior to the job loss that truly caused the financial turmoil. I was spending and not saving. I was using credit and paying the minimum each month. The job loss and the bankruptcy were the conclusion of that lifestyle. My insurance premiums were lower when I could most afford them and now they are higher when I can least afford them. The insurance company blames the consumer for the higher rate and it is the insurance company that gains from the higher rate. Between innacurate credit reports and identity theft the consumer loses.