Thursday, July 29, 2010

Home Insurance Rates Based on Your Credit Rating?

OK, we've had our 5 minutes to celebrate passage of the anti-closure bill, H4595.  There is always more work to be done, and another issue had already come across my horizon. 

I received a phone call from a public advocacy attorney who wanted to know if we're seeing the problem she's working on.  It seems that some insurers are now using your credit rating to set your home insurance rates.  Yes, that's what I said.  If you have low credit, you may get a higher insurance rate on your home. 

I guess I don't understand what insurance is all about.  I know that when I insure my car,  my rate is based on what I choose for coverage, what city/town I live in (some places have higher car theft rates), whether my car is garaged, parked in a driveway, or on the street, and the replacement value of parts or the whole car.  Those things make sense to me.

So I stupidly thought that home owner insurance was based on similar factors -- the value of the home and its replacement, the crime rate in the area, ... I don't know the other factors.  Maybe someone will inform me. 

But why would my homeowner insurance rate be linked to my credit rating?  

Our credit rating is being used for a lot more than getting credit these days. Here's some examples...
  • Keeping credit:  If you have difficulty paying on one credit card, other lenders might reduce your credit limit with them -- you've become a risk.
  • Paying off old credit debt:  With credit card reform limiting how and how much lenders can adjust your interest rate, lenders have taken to raising the interest rate of consumers who have been faithfully paying off any old debt.  I'm working with 2 consumers who had low interest rates (9.9%) that suddenly jumped to 29.99% after "credit card reform" went into effect.  So, watch your credit rating; if it slips, I'm sure they'll find a way to increase your interest rate or lower your current limit -- despite credit card reform.
  • Getting a job:  Several industries flat out won't hire anyone with a poor credit rating.  I can understand not hiring someone for the finance department, but the janitors and others with limited or no access to client or patient information?  What's going on here?   A side effect I'm seeing is that hospitals in our area won't hire anyone with a poor credit record.  So what fields are the job training programs in?  Medical!  And the people who are put into these programs are low income folks trying to get back into the job market.  Guess what?  They've mostly got a poor credit history! 
Do you know how your credit rating is affecting your life?  Maybe you should check into it.

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