Your Car and Your Credit

Still, pressure from consumer groups has led many states to limit how auto insurers use people's credit history.

Many of the state laws are based on the Model Act Regarding Use of Credit Information in Personal Insurance written by the National Conference of Insurance Legislators, an organization whose primary focus is insurance legislation and regulation. It created the model law to prevent insurers from using insurance credit scoring as the sole basis for denying, canceling or not renewing a policy or for increasing rates.

As of June 2006, 48 states had taken some form of legislative or regulatory action either banning or restricting the use of insurance credit scores, the FTC said. For example, Georgia, Illinois and Utah prohibit using credit history information as the sole basis for underwriting or rating decisions. Oregon prohibits the use of credit history information to cancel or not renew existing customers' policies or increase their rates, and Maryland bans the use of credit history when underwriting or rating existing customers.

Certainly consumers should practice good financial habits such as paying their bills on time and limiting their use of credit. But should someone pay more for auto insurance because he or she lost a job and couldn't pay his or her credit card bill?

"Insurance premiums should be based on the risk of an accident, not a consumer's bill-paying record for other goods and services," said Norma Garcia, senior staff attorney for Consumers Union.

After assessing all the research and the data from the industry, and after hearing 200 comments from the public, the FTC still couldn't determine why there is correlation between low credit scores and an increased likelihood that someone will file an auto insurance claim.

If you don't know why, then how do you know the practice is fair and unbiased?

FTC Commissioner Harbour said the agency failed to provide a more "balanced discussion of the benefits and detriments of using credit scores and credit-based insurance scores."

On that point, I concur.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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