New Rules May Force Credit Scores Out of Insurance Decisions

Throughout the United States, insurance companies rely on credit reports to help determine the overall risk factor of a prospective policyholder. Some actuarial tables suggest that low credit scores often correlate with high-risk behavior or false claims. However, Washington State Insurance Commissioner Mike Kreidler told reporters this month that his office has launched new proposals to eliminate credit reports and credit scores from insurers' calculations.

Canceling credit cards or using a charge card with no set spending limit can upset the credit utilization ratio used by many credit scoring services. Kreidler's office heard from Washington residents who had taken these steps to save money on finance charges, only to discover that a decreased credit score caused a spike in their insurance premiums. Frequent requests for in-store credit and allowing older credit cards to lie dormant can also cause the kind of credit score changes that boost insurance costs. Kreidler's proposal would force insurers doing business in the state to rely on personal interviews and insurance history profiles instead of on credit reports to make policy decisions.