I have poor credit. I have made many poor decisions regarding my finances. I have also struggled with underemployment, low wages and life as a single parent. The old adage about life not being fair has a ring of truth about it. I never thought about the consequences of the credit score, until I saw how it affected my insurance rate.
In the state of Michigan, it is mandatory to carry auto insurance. This does make sense, considering the cost of both car repairs and medical bills. Michigan does not even issue license plates until you provide your proof of insurance. I had been driving my faithful Subaru for a number of years and then she died. Sometime later, after purchasing another vehicle, I started making calls to find insurance coverage. The rates some of these companies quoted me were staggering! I have not had a ticket since I was eighteen years old. I am 48 now. I have never had a claim for an accident, or been in an accident. As it turns out, my credit score was under 600 at the time. I had also spent the last two years being underemployed. I had always been a month or two behind on utility bills, a bank loan and some other accounts.
A credit score is a number assigned to you by FICO. FICO stands for Fair Isaac Corporation. This is a company that assigns a number to you to reflect your financial situation. The practice of using a credit score to determine the cost of car insurance is controversial. Low income people tend to have lower credit scores because of difficulty repaying debt. Late payments on bills, age gender, your driving record and any past insurance claims are factored into this scoring.
I ended up getting insurance through a company you are familiar with, the one with the cute green spokes-lizard. I went with this company because they would issue the insurance immediately and do it for monthly payments. The other well known companies wanted a down payment of six months of premiums. The coverage that I got was written much lower than the other companies quoted, which means if I had an accident, the insurance probably wouldn’t even begin to cover the costs…But at least I had insurance and could get plates for the car and drive to work.
I did find a better job and started to better manage my debt. After six months of paying this high premium for low coverage, I re-approached other companies and was able to obtain better insurance for about half the cost.