Great credit doesn’t tame insurance costs

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Dear Dr. Don,
I recently received my homeowners insurance renewal statement. There was a supplemental letter attached stating I was not receiving the very best rates possible due to my credit score. My premium went up $119 from last year.

I called my banker and had him pull my score from two of the three major credit bureaus. Last year, my score was 814. This year, it is 819 from one bureau and 837 with another.

When I called my banker, he stated he had received at least 20 calls regarding the same complaint. Can you suggest any further recourse other than changing insurance companies? I had to go ahead and pay the annual premium due to time restrictions. I will definitely change companies next year, but feel as though I was taken to the cleaners!
— Picked Clean

Dear Picked,
I can understand your frustration, especially with your top-notch credit scores. How can the insurer pick that reason as the justification for increasing your premiums? It just doesn’t make sense.

Handicapping it from the sidelines, I think it’s likely the situation is similar to what a credit score provider like FICO does when it releases a score to a lender. It lists the top factors why a credit score wasn’t higher. When you’ve got a high score already, the factors are going to seem pretty picayune.

Your insurance company needed to raise the premium on your policy. Its best justification was your credit score, which is exemplary and actually appears to have increased over the past year. Still, your premium went higher.

There’s a fair amount of controversy surrounding insurance companies using credit scores in determining auto and homeowner insurance rates. There are questions whether the practice is discriminatory. State insurance commissioners by and large reviewed the practice in the early 2000s and in most states the practice survived the review.

To find out how credit scoring can be used in your state to set insurance rates, check with your state’s insurance commissioner. The National Association of Insurance Commissioners maintains a directory on its website.

I don’t see any recourse. You can vote with your feet and take your policy elsewhere, but you don’t appear to want to do that, at least not mid-policy year. Changing firms mid-policy is possible, but not always advisable due to refund policies and complications if the homeowners policy is paid out of an escrow account.

Buying your auto and homeowners policies from the same insurance company typically results in a discount. If you have auto insurance with the same company, you’d look into moving both.

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