Know the score to avoid ‘adverse action’
According to a recent survey, 97 percent of people have no idea what their credit scores are. If you are in the 97-percent group you should do something about it. We are each entitled to a free credit report every year, in fact, a report from each of the three major credit bureaus every year. Get that report by going to http://www.annualcreditreport.com.
A bad credit report will cost you higher insurance premiums and less favorable loan rates. There are ways to improve your credit score, but that’s for a later column.
Here’s a recent case about credit reports, which while a bit complex, helps explain the law.
Jason Reynolds applied for an insurance policy with Hartford Fire. If he had a favorable credit score he qualified for a 10-percent discount due to his membership in A.A.R.P.
Ajene Edo applied for an insurance policy with GEICO ” the company with the clever ads.
Reynolds’ consumer credit report was labeled a “no hit” or “no score” which means either not enough credit information or no match of Reynolds to any credit information was available. As a result, Reynolds did not qualify for the 10-percent discount.
Ajene Edo’s credit score was analyzed by GEICO, who determined it was mid-range “neutral,” which GEICO determined not to be negative.
The federal Fair Credit Reporting Act was adopted to ensure accuracy and fairness in credit reporting ” as the law recites. Anyone who obtains consumer credit reports must notify the consumer when, in reliance on a consumer report, “adverse action” is taken. Adverse action results in higher insurance premiums and loan rates. If you have a lousy credit report, late or missed payments for example, or huge balances due on credit cards, you will pay more for a loan or for insurance.
Under FCRA, anyone taking any “adverse action” based on a consumer credit report must notify the consumer of the adverse action.
The question in Jason Reynolds’ case was whether a “no hit” or “no score” rating was “adverse” and must be reported to Reynolds. The issue in Ajene Edo’s case was whether GEICO’s analysis that her credit had “neutral credit weight” was adverse and must be reported to her, notwithstanding that she received a favorable insurance rate.
In both Reynolds’ and Edo’s cases, it was the first policy issued to them by Hartford and GEICO, so the companies argued they had no obligation to report any “adverse action,” where it might have been different if they were renewing a policy and the credit score had worsened since the policy was first issued. Hartford also argued a “no hit” rating was not adverse, and of course GEICO claimed a “neutral” credit rating was not adverse.
The United States Court of Appeals ruled against Hartford and GEICO, determining that a “no hit” credit score is an “adverse action,” as is a “neutral” score, as both ratings affect the insurance premiums these companies would charge.
Furthermore, the fact that Jason Reynolds’ and Ajene Edo’s applications were for initial policies, not renewals, did not matter, as their “no hit” and “neutral” credit ratings affect the premiums they would be charged, and would affect their loan terms.
Hartford and GEICO were obligated to inform both consumers of their “adverse action” in response to their credit scores, which they failed to do. Judgment for damages for both consumers.
Go online and learn your credit score. Remember, you have a legal right to provide input as to why the report should be changed. If nothing else, I am sure you will find it interesting, but hopefully not devastating.