GEICO Pulled My Credit Report ?
As I mentioned recently, I have been looking for car insurance. I ended up going with GEICO. They offer employee discounts to people at my corporate day job. I went from Progressive with 25/50/25, to GEICO with 50/100/30, plus 50/100 uninsured motorist BI, and $30,000 uninsured motorist PD, with a $250 deductible. I ended up with significantly more coverage, and better coverage, for about $1.25 more premium cost per month.
Today, I got the following “legally required notice from GEICO” in my email box:
Federal Fair Credit Reporting Act Disclosure Notice
Thank you for contacting GEICO for a rate quote. As a result of your request for a rate quote, we asked the consumer reporting agency listed below to provide us with your credit information. This information is used in combination with other factors to determine the rate we offer. The price we quoted you may have been lower if the consumer reporting agency had been able to access your credit record.
The reason that the consumer reporting agency could not access your credit record was that there was no matching information at the credit bureau given the name, address, social security number and or date of birth that we have on file. Your credit record may be accessible by the use of more detailed information than was available to GEICO.
Please note that the consumer reporting agency did not participate in our decision. They are unable to provide you with specific reasons for our decision.
The consumer reporting agency provided the following description of the credit factors that had the most influence on the price we quoted you:
-Your credit report contained insufficient credit history for insurance underwriting purposes. (-)
If you have questions concerning the unavailability of your credit record, or would like to obtain a free copy of your credit report, you may contact the consumer reporting agency whose address is listed below within 60 days of receiving this notice. You also may dispute the accuracy or completeness of any information provided by the consumer reporting agency by contacting them directly at the address below.
I don’t really care about my credit report or credit score. I don’t borrow money. I choose to operate by the cash method. If I don’t have cash, (or money in the checking account), I don’t buy. I don’t get credit cards for mileage, cash back, or reward points.
There is “no free lunch”. Those “freebies” will be paid for some other way. It’s Vegas, baby… eventually, the house always wins. How else do you think banks and insurance companies can afford those extravagant palaces known as “the home office”?
Anyway, the email from GEICO surprised me. I didn’t realize they were allowed to pull my credit report. I learned Section 604 of the FCRA (Fair Credit Reporting Act) allows the Credit Reporting Agencies to give your credit report to any company which plans to underwrite insurance on you.
According to FICO, approximately 95% of auto insurers, and 85% of homeowner insurers use credit-based insurance scores in states where the practice is legal. NAIC (National Association of Insurance Commissioners) says the practice started in the early 1990’s.
According to this article, FICO considers five items:
- Payment History – 40% – how well you have made payments in the past
- Outstanding Debt – 30% – how much debt you have now
- Credit History Length – 15% – how long you have had credit accounts
- Pursuit of New Credit – 10% – if you have applied for new credit recently
- Credit Mix – 5% – what types of credit you have
So, 70% of your credit score is based on you being in debt, staying in debt, and remaining current with debt. I think the practice is predatory.
If a person has a lower income, they will have a lower score on their credit report. Not necessarily because they pay their bills late, but simply because part of your credit score is based on how much you borrow, and how long you stay in debt. If you don’t borrow much, and don’t stay in debt, your credit report suffers. This can negatively impact their insurance premiums.
If you lose your job and fall behind on your credit card payments, as I did, will your insurance premiums rise? My credit report was pretty bad for a long time. It also seems to penalize someone who could not work due to a medical problem, for example. Kick a guy when they are down, eh?
“Thank you, sir… May I have another?”
Most people have a blemishes on their credit report. I did after I lost my job. Most bankruptcies are related to job loss, medical bills, or divorce. In many cases, the person seeking insurance had no control over these factors. Yet, they are being (potentially) penalized with higher insurance premiums, because the insurer relies heavily on the credit report.
According this article on United Policyholders,
With some insurance companies, a consumer with the worst credit score – everything else equal – can pay two, three or four times as much as a consumer with best credit score. But even though your credit history is likely to have more impact on your premium than any other factor – your driving record or the condition of your home – insurers don’t advertise their use of credit information. Instead, you will see commercials claiming responsible drivers save money – even though a driver with a clean record can pay more than a driver with an accident or violation because of credit history.
As this Mint.com article points out, follow the money. Insurance companies want to know how profitable you would be as a customer. Apparently, the way you manage your credit report predicts what kind of insurance customer you will be.
Statistically speaking, that assumption must have some validity. Otherwise, the insurance companies would not pay for the credit report.
However, I’m not sure how accurate that is on an individual basis. I’ve had auto insurance for over two decades, have never had a claim, and according to GEICO, the CRA says I have “insufficient credit history” for underwriting.
So, it looks like GEICO lost money buying my credit report. 🙂 lol