Several States are currently looking into the issue of credit scoring, which became popular with insurance companies a few years ago.

If it is one thing insurance companies know, it's statistics. According to tons of research made available by insurance companies, the better your credit, the fewer claims you have.

What does your driving record have to do with your credit? Perhaps even the insurance companies do not know. But they are armed with statistics to back up their claim that bad credit risks have more claims.

When you shop for insurance in some states, such as Arizona, not only will your driving history be run but a sort of credit check too.

Insurance companies do not necessarily look at your credit the same way a car lender or mortgage lender would. But the effect is still the same. If you have great credit, or a great "insurance credit" score, you likely will pay less for your insurance premiums.

Some voices claim this is racially unequal, as statistics seem to indicate that minorities tend to pay higher premiums as a result of insurance credit scoring. Which is a way of saying that according to their statistics minorities have lower credit scores on average, which would seem to make them not as desirable for an insurance risk.

See the difficulty the issue can create?

Not all credit scoring is made equal either. Some companies have only a handful of tiers in which to place clients, based on their score. Other carriers can have hundreds of tiers. It's almost impossible, as a consumer, to understand it all.

Insurance companies generally tend to indicate that if credit scoring was made obsolete it would raise rates. Without the ability to factor credit into their rates it would remove an important consideration for them. Credit helps to narrow the good drivers from the bad, generally speaking that is. That's the reasoning and objection that is used, anyway.

The best advice is to do some research on improving your credit and credit score. Not only will you get better rates on car and home loans, but you can lower your car insurance rate at the same time. That is, until the legislatures in various States decide otherwise on the issue of using credit as a factor in insurance rates.

####