Life and Money With Helaine by Helaine Olen

Credit Score Impacts Car Insurance Rates

Dear Helaine: Recently, I looked around for car insurance and was told my "insurance score" is "average." I couldn't believe it, but I was told it had to do with my credit rating. I have no negative info on my credit record. I checked, and it's clean.

Apparently, they want a history of buying on credit for a good score. I never borrow a penny, and that has cost me higher rates. My driving record is completely clean.

I've always paid cash for everything, including houses and cars. Being a saver, and a prudent and careful investor, I have brokerage accounts in the seven figures and have for decades. How these people could rate me as "average" is beyond comprehension. The fact that I am paying higher rates than someone who needs to borrow galls me. What can be done? -- Insurance Blues

Dear Insurance Blues: I agree with you. I think this is a disgrace. Your credit score should not be a factor in car insurance rates at all. There are lots of reasons a credit score can take a hit that have nothing to do with how you drive -- unemployment and high medical bills are two that come to mind immediately.

But there is a bigger issue here, at least as far as you are concerned: how credit scores are calculated. They are based on how you pay back borrowed money. That means if you are incredibly responsible or cautious -- as you are -- and pay for everything with cash, your credit score will take a hit, and it doesn't matter how much money you have in the bank, in investments, the value of your home and so forth.

There's a reason for this. If you don't take out any loans or buy anything on credit, there's nothing to measure. While there is a growing movement to count such things as regular utility and cellphone payments toward credit scores, it has not really taken off. You would think a seven-figure net worth and no debt would mean something. Unless you are a lottery winner or heir, it would seem to indicate a decent ability to manage money well. But it doesn't register.

My advice: It's not worth fighting the system on this one. I'd apply for a credit card, and when you receive it, make a few small charges, so you can build up credit history. Don't put it in your wallet, and don't input it online. Just take it to the grocery store or some such every few months, and then pay off the resulting bill promptly.

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