Credit Card Lenders Go on a Rampage

[hguyw]

Did your contact at State Farm give you any idea of how big a price differential there is on car/auto insurance between credit rating based on one debt and credit rating based on no debts?

No, but I just went back and looked up my insurance payments for the last three years. In 2007 I made some major headway in paying off the last of my CC debt - IIRC I paid off $12,000 in about 10 months. (Final payoff of all CC's was in October of that year.) So here's what happened to my car and homeowner's insurance in that time:

Car Insurance:
3/07 $283.30
9/07 $269.66
3/08 $264.66
9/08 $265.46
3/09 $250.22
9/09 $257.26

Homeowner's Ins.:
7/07 $419.00
7/08 $409.00
7/09 $395.00

These aren't huge decreases, but the overall trend has been down. Can't remember exactly but my credit score was in the high 700s while I was paying down the debt, and when I checked it again last year it was 812.

I just paid off my mortgage on October 26, so it will be interesting to see what happens with my insurance in the future, now that I have zero debt of any kind.

 

[scrabbler1]

Hguyw, I worked in the P/C insurance industry for 23 years until I retired from it last year. I specialized in personal auto insurance in the actuarial area.

There are many more factors which can influence one's auto insurance bill than credit score, if credit score affects it at all. In my final few years of working, there was plenty of state litigation about whether it could be used. Some states sought to prohibit it from being used.

But back to insurance rates. The recent loss experience in one's area is a big factor in determinig insurance rates. Furthermore, particularly for auto, there are many coverages one purchases - from No-Fault or Medical Payments to Comprehensive to Collision to Bodily Injury and Property Damage Liability to Uninsured Motorists. The rate for one coverage can rise while the rate for another can fall. With Comp and Collision, a rate tends to fall as the car ages and its book value drops.

An insured can help himself by taking a defensive driving course to get a discount. Simply driving well and remaining accident-free can earn extra discounts.

Homeowners insurance has fewer variables than auto insurance, but loss experience in one's home area plays a big role, too.

 

[hguyw]

There are many more factors which can influence one's auto insurance bill than credit score, if credit score affects it at all. In my final few years of working, there was plenty of state litigation about whether it could be used. Some states sought to prohibit it from being used.

That's pretty much what the State Farm rep told me too - it's a minor factor in determining rates, but they do look at it. (I'm in central/northern NY.) IIRC I asked about it when I'd called to see about raising my deductible; I was more curious than anything.

I do question the fairness of using the credit score tho; a score isn't always low because of irresponsible spending. I can see where someone dealing with overwhelming medical bills could also have a very low score.

Homeowners insurance has fewer variables than auto insurance, but loss experience in one's home area plays a big role, too.

That makes sense. We don't drive our houses down the road at 60+ mph. They more or less stay put.

 

[ziggy29]

I do question the fairness of using the credit score tho; a score isn't always low because of irresponsible spending. I can see where someone dealing with overwhelming medical bills could also have a very low score.

True, but if there is a provable correlation between credit score and the cost of servicing an account and claims history, it's not really any different than using gender or age or marital status.

 

[Bimmerbill]

I think I remember USAA posting something saying they don't use credit scores to set auto rates.

 

[brewer12345]

Realistically, I believe that cancelling an extra CC will only ding your score by a few points, so it should be no big deal. Now that my mortgage refi has gone through, I may kill off an extra card I got when I was stoozing, but have not used since. Just make sure you have access to enough credit for your needs.

 

[HFWR]

I'd love to see a semester of personal finance be a high school graduation requirement...

But they might have to cancel the Creation Science class...

 

[Walt34]

Well Zig, the odds are certainly on your side there. Congresscritters can and do muck up most things they touch. But if they just had to do something about their preoccupation with personal credit and whether citizens are being "victimized" or not, I'd rather see them legislate funding for personal economics education than legislate detailed operating rules for lenders. It's hard for them to do since they vision themselves as heros riding in on the white stallion to help the hapless victim by shooting the bad guy as opposed to empowering the victims to stand up for themselves.

But wait! Those borrowers are entitled to the good life! It's the American Dream! Now you're saying that people have to assume responsibility for their debts? Oh, how 19th century can you get?

 

[hankster]

That makes sense. We don't drive our houses down the road at 60+ mph. They more or less stay put.

Audrey did (until her recent home purchase)

 

[Gumby]

Realistically, I believe that cancelling an extra CC will only ding your score by a few points, so it should be no big deal. Now that my mortgage refi has gone through, I may kill off an extra card I got when I was stoozing, but have not used since. Just make sure you have access to enough credit for your needs.

Citibank just sent me a letter informing me that they are going to start charging a $60 annual fee. It is a card I used for stoozing about 3 years ago and haven't ever actually charged anything with. So I called them and cancelled the card.