Oregonians Decide to Count Credit Scores

Recently, a ballot proposal dealing with car insurance in the state of Oregon was rejected by voters. The new law would have prevented auto insurance companies from considering a motorist’s credit score in their rate calculations. Currently, the laws are reasonably fair to Oregonians with less-than-perfect credit, as car insurance agencies are required to notify motorists if their credit score is contributing to their rates, and the insurers are not permitted to use credit as a reason for canceling a policy. These laws are more lenient than many states’ minimum requirements for use of credit scores.

The Downside of Using Credit Scores

Let’s look at two examples. Our first example, Lynn, looks pretty good to most insurers. She’s thirty-five years old, married, and lives in the suburbs on a quiet cul de sac. She drives a Volvo with the highest safety ratings, her commute to work is only six miles round trip, and she’s never even had a speeding ticket. So why are her rates high?

Well, Lynn has terrible credit. She was very sick a few years ago, and didn’t have health insurance. Her medical bills were so high that she couldn’t pay them. She also defaulted on three credit cards, since she couldn’t pay the minimums, she had an unsecured loan that she’d taken out to start a business. When she couldn’t pay, the lender was awarded a judgment against her. She’s still trying to struggle out of the hole.

Lynn is a perfectly safe driver who is no more likely to get in an accident than someone with good credit, but the car insurance industry begs to differ. They say that accidents and claims are correlated to an individual’s credit score, but that’s only in the aggregate - with individuals, like Lynn, it may not be true. If Lynn is a registered voter, you can bet she voted in favor of the failed ballot imitative. So why didn’t it pass?

The Upside

Our other motorist is Paul. Paul is twenty, single, and he drives a sports car. He lives in a busy, slightly rundown neighborhood, in which incidents of theft and vandalism are comparatively common. He’s also gotten in trouble a few times for driving upwards of 100 miles an hour in his flashy car. He works in construction, mostly siding repair, so he drives all over the state for work. He estimates that he drives at least thirty miles in an average day; many more during his busy season.

However, one thing going for Paul is that he has great credit. He bought his fancy sports car when he was only seventeen, and he made enough money with his siding work to always pay his car payment on time. His dream is to open his own construction company, and he knows that keeping his credit clean can help him get business loans. He has two credit cards that he uses each month to pay for his cell phone and other expenses, but he always pays them both off in full when the bills are due. As a result, his credit is spotless, and if credit scores were not used to determine car insurance rates, Paul would undoubtedly have to pay more.

The Cost of Bad Credit

With all that we now know, is it surprising that Lynn pays $1100 for her six month policy, while Paul pays $1500- only marginally more? A motorist with bad credit can end up paying up to 47% more than a motorist with good credit! What does this mean for Lynn and Paul? That if Lynn had good credit, she might only have to pay $750 for six months - a savings of $700 a year! What about Paul? If he had Lynn’s credit and his driving profile, he might expect to pay up to $2200! That’s a crippling amount to pay.

So what should you do if you don’t have the greatest credit? You’re probably paying more for your car insurance, so the best thing that you can do is try to find the most reasonable rate. If you know that you’re going to get charged a higher rate, you have even more motivation to shop around. Carinsurancerates.com can help you find a car insurance quote that you can afford. Don’t let bad credit keep you off the road!