Fair Credit Reporting Act News
A look at how mistakes in credit reports might raise insurance rates and what consumers might do to lessen this effect
Wednesday, October 9, 2024 - Insurance premiums are mostly determined by credit reports, hence mistakes on those reports could result in much more consumer expenses. When deciding premiums for house, vehicle, and other insurance policies, insurers routinely evaluate a person's risk profile using credit-based insurance scores. Credit reporting mistakes can be repaired under the provisions of the Fair Credit Reporting Act (FCRA).
Any errors on a credit report--such as erroneous reported delinquencies or inaccurate payment histories--may lower a person's score, therefore affecting their insurance rate. Credit-based ratings are used by insurance firms since they think that those with better credit are less likely to make claims while those with lower scores could show more financial risk. This means that even minor mistakes in a credit report, such as an incorrectly noted late payment or an account mistakenly reported as delinquent, can have a significant impact on insurance rates. Such errors can lower credit scores, which would classify consumers into a higher-risk group and result in higher premiums that might be difficult to defend. One of the most often occurring problems results from either obsolete or inaccurate debt statuses. For example, a consumer's credit score will show a bigger debt burden than what is accurate if they paid off a credit card or loan while it is still marked as active or delinquent. When insurance companies check the credit record, this can especially hurt since they could see the customer as having more outstanding debt than they have. Likewise, false claims of missed payments can make consumers seem unreliable financially, therefore raising their insurance costs.
Another major mistake results from identity confusion. Sometimes a person's credit report contains data from another person with a similar Social Security number or name. Since these identification mistakes usually include debt or unfavorable financial practices the customer did not conduct, they can cause significant damage. Such errors can dramatically reduce a consumer's credit-based insurance score, therefore affecting premiums. Although consumers might not always understand the link between their credit reports and insurance premiums, it is still imperative to remain alert. By routinely going over credit reports from the three main bureaus--Equifax, Experian, and TransUnion--one can find any mistakes before they affect insurance rates. Should an error be found, the customer should promptly dispute it with both the credit agency and the business that supplied the erroneous data. Often within 30 days, these parties are required by the Fair Credit Reporting Act (FCRA) to look at and fix mistakes. Laws control in some areas the degree to which insurance companies may base premiums on credit-based scores, but this is not consistent nationwide. Therefore, customers should be vigilant in preserving the accuracy of their credit reports to prevent being penalized with more insurance premiums due to erroneous information. Ultimately, credit report mistakes might greatly raise insurance rates, so burdening people with unneeded financial load. Regular credit record checks and quick correction of mistakes help people guard against increased insurance costs and keep access to reasonable rates.
