The Record, Hackensack, N.J., Your Money’s Worth column [The Record, Hackensack, N.J.]

Aug. 29--Paying too much for auto insurance? Check your credit score.

While the two may not seem related, they are. And changes in your credit score -- up or down -- can directly affect how much you pay to insure your car, as Mary Lafayette of Harrington Park discovered.

"I recently bought a new car and while trying to check something on my auto insurance website, I noticed that they took your credit score into account to develop your insurance score," she said.

"I asked my agent how often they checked your credit score (I have a six-month policy) and was told about every three years," she said.

"I recently had a problem with incorrect information on my credit reports and when I had it corrected, my score went up by almost 100 points. I asked Travelers to rerun my credit score and was pleasantly surprised when my insurance was reduced by $155 for the six-month period."

Lafayette's experience raises a question that has been asked by consumer groups, the FTC and Congress: Why credit scores?

Evidently, they are "effective predictors of the claims that consumers will file ... and the total cost of those claims," the Federal Trade Commission said in a 2007 study commissioned in response to a congressional inquiry.

"Their use is likely to make the price of insurance better match the risk of loss that consumers pose," the FTC said.

Translation: The lower your score, the higher your rates are likely to be.</p>

But the study also found that African-Americans and Hispanics tended to have lower scores than non-Hispanic whites and Asians, forcing them to pay higher rates.

Using credit records to develop your insurance profile is permitted under state law "with the caveat that there are consumer protections in place," said Marshall McKnight, a spokesman for the New Jersey Division of Banking and Insurance.

Those protections include a prohibition against using scores affected by "extraordinary life exceptions," such as divorce, job loss, military call-up or injury, McKnight said.

While most big insurers use credit scores to help determine rates, the practice is not universal, with New Jersey Manufacturers and CURE Auto Insurance among companies that don't use them.

"We don't primarily because we have a very successful model with the rate system we have in place," said Pat Breslin, a spokesman for New Jersey Manufacturers.

"We limit coverage, generally speaking, to safe drivers. If we have a driver that has developed a long-term problem with safety, then we do a non-renew," Breslin said.

While your credit history may be an accurate predictor of insurance risk, as the FTC says, that assumes that the reports are accurate. But a 2004 survey by the U.S. Public Interest Research Group showed that 8 in 10 contain errors, some serious.

That figure seemed high, so I checked up on myself and my wife and our pretty straightforward credit history based on stability in job and home and limited debt.

I found no errors on the TransUnion report, but Experian had two errors with my name, changing it to "Kev G. DeMarrais Sr." A check of old reports shows that it has been that way since at least 1999 -- without my noticing it. But in 2005, it was correct. Go figure.

Equifax also lists me as working for Chevron -- never have -- and my wife hasn't worked for the employer listed by Experian in 15 years. Also, Experian has her date of birth wrong.

None of these errors has caused us a problem, but they could.

Credit scores are also used for a variety of other purposes, including renting a house and getting a job, which is why it is worth checking your score periodically.

While federal law entitles you to a free copy of your credit report once a year from each of the three major credit bureaus, you have to pay for a credit score.

But the cost is minimal -- $7.95 to $15.95 for each -- and it might be worth checking every few years.

Each report will be a bit different as the three companies get data from different sources. Just make sure you purchase the score on a one-time basis, not the recurring credit file monitoring sold. They cost $14.95 a month for a service you rarely need.

The only authorized source under federal law is AnnualCreditReport.com.

E-mail: [email protected]

To see more of The Record or to subscribe to the newspaper, go to http://www.northjersey.com.

Copyright (c) 2010, The Record, Hackensack, N.J.

Distributed by McClatchy-Tribune Information Services.

For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com, e-mail [email protected], or call 866-280-5210 (outside the United States, call +1 312-222-4544)