Auto insurers use your credit history to set rates
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"The notion that you would penalize people like that with higher auto and homeowner insurance rates is unconscionable."

There's also a concern that lower-income people and minorities, who tend to score lower on traditional credit scoring models, will be penalized with higher insurance rates.

"When they say the models are color-blind and they don't consider race and income, it doesn't mean that minorities and poor people aren't disproportionately affected," Birnbaum says.

Fair or not, most insurance companies are using credit information to help determine insurance premiums. Just how big an impact your credit record has on your auto insurance bill varies based on the state where you live and the insurance company you choose.

Insurance is regulated at the state level. Some states allow auto insurers to use credit data in the approval process. Others allow insurers to use credit data when determining what rate class a driver falls into. Some use it for both.

Not sure where your state stands on auto insurance scoring? Contact the insurance department in your state. This map from the National Association of Insurance Commissioners links to each state's insurance department.

Be sure to ask about pending legislation as well. In the past two years, 40 states have considered or passed legislation regulating the use of credit information in insurance. For a list of states, check out this chart.

Some of the new laws are more consumer-friendly than others.

The state of Washington passed some of the friendliest legislation. Under the new law, which takes effect in 2003, insurance companies may no longer cancel or refuse to renew an insurance policy because of a consumer's credit score.

Insurance companies are also restricted from using certain credit factors when determining coverage and pricing. They include the total available lines of credit, collection accounts identified as medical bills, absence of credit history and the type of credit or charge cards used by consumers.

"We tried to take factors we thought were the most unfair," says Stephanie Marquis, a spokeswoman for the Washington State Office of the Insurance Commissioner.

And if your insurance premium should go up because of your credit, a Washington insurance company must explain why in detail.

"Now they can't just say it's something in your credit," Marquis says. "They have to list four significant negative factors."

Another key consumer protection in Washington focuses on errors on your credit report. If an insurance company prices your auto policy based on an error in your credit report, it must pay you back.

"Once you clear it up the company has to re-issue the policy at the correct rate and pay you back," Marquis says.

Other states have passed laws with less consumer-punch, some with considerably less. Fifteen states have passed laws based on a model act put out by the National Conference of Insurance Legislators (NCOIL).

These state laws prohibit insurance companies from counting an absence of credit history or unpaid medical bills against their customers, but they also give insurers free rein to price premiums based on insurance scores.

Under the NCOIL model act, insurers may not base rates solely on your credit record. The key word here is "solely." An insurance company would still be free to base 99 percent of the price of your premium on your credit record if it wanted to.

"The use of the word solely provides zero protection for consumers," Birnbaum says. "It's meaningless. It's pretend consumer protection."

How can you protect yourself from getting a bad deal on your auto insurance? Do plenty of homework.

First off, find out how insurance companies may use credit data in your state.

"Find out what the law is in your state," Marquis says. "If you disagree, contact your legislators."

Next, find out how your particular insurance company uses credit data. Do they use it to deny or approve coverage, to price premiums or both? Do they use credit data when underwriting new customers? Do they use it on contract renewals?

Ask your insurer for your insurance score. An insurance company doesn't actually peek at your credit report. Instead, it receives an insurance score from a credit bureau based on the information in your credit record.

Fair Isaac Corp. and ChoicePoint provide the credit bureaus with the formulas to crunch insurance scores. Some insurance companies have their own scoring models.

Insurance scores vary from insurance company to insurance company. A 750 score with one company doesn't mean you'll receive a 750 score with another company. Rather than obsess about the number, find out where you stand in the overall scoring chart. Does your credit record put you near the top of the heap? Near the bottom? Somewhere in-between?

"There's going to be more similarities than differences between the models," says Jeffrey Skelton, assistant vice president for personal insurance at ChoicePoint. "You're not going to see a consumer falling to the bottom of our table scoring high on another model."

At ChoicePoint, you can purchase your auto insurance score online for $12.95. According to the ChoicePoint model, if your score is under 500, you're considered a high risk. If your score is between 501 and 650, you're a medium risk. If your score is between 651 and 750, you're a low risk and if it's above 751, you're the lowest risk.

Here's another thing to keep in mind about auto insurance scores -- some insurance companies rely on them more than others when pricing policies.

"One particular company might be placing greater emphasis on your driving record and claims history than your insurance score," Alldredge says. "With another company the order might be reversed."

Regardless of your credit record and auto insurance score, it's a good idea to shop around for auto insurance. Insurance rates vary widely. You could find the coverage you want for hundreds of dollars less a year.

"You can pay double from one to the other or more. It's very important to shop," Hunter says. "You want to make sure you're not with a high priced company."

The more you shop the better your chance of landing a better deal on your insurance.

"Insurance is a very competitive business," Alldredge says. "Get more than one estimate."

It's also a good idea to check your credit report before shopping for auto insurance. Nobody wants to get stuck paying more for auto insurance because of an error on your credit report.

Bankrate.com has a step-by-step guide that explains how to request copies of your credit report from the three major credit bureaus and how to correct any errors you may find.