The Dollar Stretcher

Denise has discovered that beginning around 2002 insurance companies began to consider credit scores. Today over 90% of the largest auto insurers use them. Not only to decide whether to insure you, but also to determine what rates to charge.

The goal of the insurance company is to set a rate low enough to attract business, yet high enough to cover claims and earn a profit for the company. Since they can't see into the future they've always looked for ways to group people that would help them determine who's more likely to file a claim. Insurers say that studies show a correlation with a person's credit score.

Technically, most insurance companies use an 'insurance score' to help provide quotes. The insurance score is similar but slightly different than your 'credit score'. It's calculated by ChoicePoint and includes credit scoring information. You can get a copy of your score at choicetrust.com (1-866-312-8076) for $12.95. Insurance scores do not include income or racial data.

'Credit score' generally refers to the FICO (Fair, Isaacson Co.) score that includes roughly 20 items. They do not release the formula so no one knows for sure what's in it. A good score is generally 760 or better. A bad score is 600 or below.

We're not going to debate whether it's good or bad for insurance companies to use credit and insurance scores. We'll leave that to others. What we will do is to help Denise get the lowest possible insurance rates.

Denise should begin by checking her credit score. According to The Fair Credit Reporting Act you're entitled to a free copy of your credit report yearly from each of the three major credit reporting agencies. The agencies are: Equifax (equifax.com or 800-685-1111); Experian (experian.com or 888-397-3742) and Trans Union (transunion.com or 800-888-4213). You can request a free report at AnnualCreditReport.com or 877-322-8228.

Denise needs to make sure that her score does not include inaccurate information. According to the Public Interest Research Group about 1 in 4 reports have serious errors that negatively affect the credit score. If Denise finds errors she can request that they be corrected. Just call or visit the agency site and ask for 'dispute resolution'.

If all the bad information is correct, there are still things that Denise can do. Try to resolve any problems that are causing your credit score to drop. Large bills like medical, mortgage and car payments can often be set up on a payment plan if you contact the lender. Talk with them before an account becomes past due.

Most insurers put more weight on your credit activity within the previous year. So make an effort to avoid any late payments. Also, keep any one card from being 'maxed out'. It's better to have your balances spread among a few accounts.

Beware of people who offer to 'fix' your credit history or to create a new credit identity. They can't do anything legally that you can't do for yourself.

Once Denise has done what she can with her credit score, it's time to talk to insurers. Not all will treat your credit score the same way. Some are more tolerant of a low score than others. So it pays to shop around.

When it's time to renew your policy ask your insurer to re-evaluate your credit score. Especially if you've been working to improve it.

If, on the other hand, Denise has a good credit score she'll want to use it to her advantage. Make sure to insure with a company that includes credit scores. Again, shop around. Some insurers could be more aggressive in lowering rates for high scorers.

Finally, Denise can expect to see other uses for her credit score. Landlords and potential employers are already looking at them. All this underlines the importance of managing your credit score. Not only doing what it takes to earn a high score, but also monitoring to make sure that no errors knock down your score.