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Bad Credit Shouldn’t Mean Higher Insurance Rates, WA Official Says

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Like many people, Cheryl Richmond has struggled to pay her bills during the COVID-19 pandemic. After losing her job in February, she missed two mortgage payments before she worked out a new financial arrangement with her bank.

Months later, Richmond was startled when she got a notice saying her car insurance bill was going to double. She went from paying $425 for six months of coverage to more than $800.

That’s because, unbeknownst to Richmond, credit reports play a major role in determining what people pay for insurance, both in Washington and most other states around the country.

“This is really unfair,” said Richmond, a Vashon Island resident who says she has an unblemished driving record, but saw her credit score drop about 200 points this year. “People are hurting right now.”

Mike Kreidler, Washington state’s insurance commissioner, agrees. He said tying insurance to credit reports is a particularly damaging practice during a global economic crisis that has led to widespread unemployment.

Now, Kreidler is proposing legislation to cut the link between credit scores and insurance rates, so that people whose credit sinks during the pandemic don’t also end up owing more for insurance.

“Those credit scores for many people have gone in the tank — and we’re gonna make sure that they have to pay more now?” said Kreidler, a Democrat who regulates the state’s insurance industry. “… Where’s the fairness in that?”

For Kreidler, it’s also an issue of equity. He said low-income people, who are disproportionately Black, Indigenous and people of color, tend to be hurt the most by the insurance industry’s reliance on credit scoring.

A study released this year by the Federal Reserve found the typical white family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. Another Federal Reserve study from 2007 found that Black and Hispanic people had significantly lower credit scores than white and Asian people.

Also in 2007, a Federal Trade Commission report found that, when credit history was considered, Black and Hispanic customers were on average classified as riskier to insure. That determination would generally lead to those customers paying more for insurance.

Because of those factors, Kreidler sees the insurance industry’s use of credit reports as a prime example of institutional racism.

In a July letter, Kreidler highlighted several insurance companies’ public statements, issued at the height of this year’s Black Lives Matter protests, about the need to address racism and societal inequities.

“Leaders — public and private — must now take action to honor the commitments many have expressed recently to end the structural inequities that have existed for too long in our society,” Kreidler wrote, while asking for the industry to support his bill.

Richmond’s insurance company, Allstate, did not respond to questions about Richmond’s rate increase, but wrote in an email that “race is not a factor in pricing, underwriting or claim settlements.”

In a letter last month, insurance industry groups told Kreidler’s office that they opposed a draft version of his bill.

The groups called their credit-based scoring system “an objective and accurate method” for assessing how risky someone is to insure. They wrote that the credit-based insurance scores used to determine rates “are tied to risk, and not to race or income.”

“Credit-based insurance scoring is a predictive tool for insurers — and a fair one for consumers,” according to the letter, which was signed by the American Property Casualty Insurance Association, the NW Insurance Council and the National Association of Mutual Insurance Companies.

By way of evidence, the companies cited the 2007 FTC study, which said credit-based insurance scores predicted fairly accurately how likely a customer was to file a claim.

As to whether the use of credit history reinforces systemic racism, Kenton Brine, the president of the NW Insurance Council, wrote in an email that “the allegation is powerful, but unproven.”

Yet others see little to no connection between a person’s credit report and how likely they are to get into an accident or file an insurance claim.

Linda Taylor, the vice president of housing and financial empowerment at the Urban League of Metropolitan Seattle, said credit scores don’t take into account many of the bills people pay reliably every month, such as rent and utilities, making credit history a poor gauge of personal responsibility.

Corey Orvold, a real estate agent who teaches a homebuyers class for the Tacoma Urban League, agreed. “I could have stellar credit and be a horrible driver, or be a horrible cook. There’s really no correlation,” she said.

Because Black Americans in particular have been denied opportunities to build intergenerational wealth, including by being blocked from educational opportunities and homeownership, they are less likely to be able to ask a parent or family member for money during tough times, Orvold said. That can lead to more delinquencies that negatively affect their credit scores, she said.

Orvold said charging more for homeowners insurance based on credit history can make buying a home further out of reach for those with less than stellar credit.

“The home insurance payment is part of your mortgage payment,” Orvold said. “It is just another barrier where people may say, ‘My homeowners insurance is too much, I can’t afford this house.’ “

Insurance companies, meanwhile, argue that considering credit history allows them to offer discounts to many customers who have good credit.

State-level reports from Arkansas and Vermont seem to back that up, finding that although some people paid more for insurance when credit reports were factored in, most customers paid less. Brine, with the NW Insurance Council, argued that banning the consideration of credit history will cause prices to go up for most people.

But those who want to end the practice say that hasn’t been the experience in California, where voters passed a measure in 1988 to ban the use of credit history in determining auto insurance rates.

According to a 2019 report from the Consumer Federation of America, car insurance rates increased much more slowly in California between 1989 and 2015 than in other states. Liability insurance rates in California actually decreased slightly during that time, the report said.

Meanwhile, cost increases can be substantial for those penalized because of their low credit scores.

A 2015 analysis by Consumer Reports found that, in Washington state, a driver with poor credit and a clean driving record would pay $690 a year more for auto insurance than someone with excellent credit and a conviction for driving under the influence.

State Sen. Mona Das, D-Kent, said that if people end up with higher bills to pay because of their credit score, it makes it even harder for them to get out of debt and improve their credit. “It’s sort of like a circular problem,” said Das, who plans to sponsor Kreidler’s legislation in the state Senate.

Das said she, too, sees eliminating credit scores from insurance rate-setting as a racial equity issue, as well as something the Legislature needs to address urgently because of the pandemic.

Passing Kreidler’s legislation is a priority for Black Lives Matter of Seattle-King County and the Washington Black Lives Matter Alliance, a spokesperson said.

Richmond, the Vashon Island resident whose car insurance bill doubled, said she thinks there should have been a moratorium on insurance companies hiking people’s premiums during the COVID-19 crisis, similar to the statewide moratorium on evictions the state put in place earlier this year.

Since that didn’t happen, she said Kreidler’s bill is a good solution.

“I am not the only one suffering, and this was the worst possible year,” Richmond said. “It is obviously something that fell through the cracks.”

Only two states — California and Massachusetts — ban the use of credit-based insurance scores for both homeowners and auto insurance policies, as Kreidler is proposing. Hawaii bans the use of credit information only for auto insurance, while Maryland bans it only for homeowners insurance.

Kreidler said he thinks Washington should act swiftly and set an example for other states around the country.

“This is where society needs to step in,” Kreidler said. “If we take a hard position here, we’re setting a model for other states to step up to it, the way Washington hopefully will.”

Kreidler and Das plan to formally introduce their legislation sometime this month.

A new 105-day session of the Legislature begins Jan. 11.


Crosscut is a service of Cascade Public Media, a nonprofit, public media organization. Visit crosscut.com/membership to support independent journalism.

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Debt consolidation programs: How they work

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If you’re trying to pay off debt, you’ve probably looked into the variety of options that could help. If so, you’ve likely come across debt consolidation programs — and may be wondering what they are.

Debt consolidation programs can help borrowers who may be overwhelmed by debt payments by combining multiple loans into a single payment. Typically, these programs are offered by credit counseling organizations. These organizations may offer guidance and financial planning in addition to helping consolidate debt.

A reputable credit counseling organization will likely incorporate guidance to help with managing debts, along with providing educational material, workshops and other ways to help borrowers work to develop a realistic budget.

A legitimate debt consolidation program should feature counselors who are certified and trained in offering advice on consumer finance issues in order to create a personalized plan, whether it’s to address credit card debt, bad credit or other needs.

Consolidating debt typically results in a refinanced loan, with a lower or more manageable interest rate and modified repayment terms. According to the Federal Trade Commission, it is recommended to find a local debt consolidation program offering credit counseling in person.

You may find these accredited, nonprofit programs are offered through channels like credit unions, universities, religious organizations, military bases and U.S. Cooperative Extension Service branches.

(It’s important to note that everyone’s debt payoff needs differ, so your mileage may vary.)

Related: Paying off debt—9 strategies to try

What Is a Debt Consolidation Program?

Debt consolidation programs can play two roles. For one, they help borrowers combine multiple loans into a single payment, which can make repayment less overwhelming. For another, they act as credit counselors.

With tools for loan repayment strategies and debt management, they can help lower or simplify monthly debt payments. These types of programs are usually managed by credit counseling companies.

It’s good to note the difference between debt consolidation programs and an actual loan opened to consolidate debt.

Qualifying consumers can use a debt consolidation loan (typically an unsecured personal loan) to combine multiple debts into a new single loan as well, possibly with a lower interest rate. But there is no counseling offered during the loan application process, and paying down the debt remains entirely the burden of the borrower.

The services outlined above can make a debt consolidation program different from other methods of consolidation or interest reduction, such as a balance transfer for a credit card, or a personal installment loan from a banking institution or lender.

Keep in mind that debt consolidation is also different from debt settlement, which is a process used to settle debts for less than what is owed.

When enrolled in a debt management program, which is one part of a debt consolidation program, a single monthly payment is sent to the credit counseling agency, which then distributes an agreed-upon amount to each credit card or loan company. The goal of the program is to act as an interlocutor for the debt between the borrower and creditor.

While most debt consolidation program companies are nonprofit organizations, nonprofit status does not guarantee services are free, or even affordable.

These organizations can, however, reach out to the lenders on behalf of the borrower to find an affordable repayment plan, which could take shape in the form of waived fees or penalties, lowering interest rates, in exchange for a specific timeline of usually three to five years for the debt to be repaid.

These programs are not loans, which would come from financial institutions. Perhaps most importantly, debt consolidation programs do not make any promises to reduce the amount of debt owed. Those are debt settlement programs, run by outside companies who negotiate payments with creditors, and can be for-profit, predatory or may not act in the best interest of the borrower.

A debt management program, on the other hand, could help set borrowers up for future success, when it comes to how to budget and manage money, educating consumers about cutting expenses or ways to increase income in order to gradually eliminate debt.

Pros and Cons of Debt Consolidation Programs

Debt consolidation is typically most beneficial to those struggling with high monthly debt payments. Paying just the minimum balance on debts every month means it could take a long time to pay off the debt, and interest costs could continue to add to the balance. Getting rid of high-interest debts can help make it easier to pay off the principal amount of the loan.

While having a lot of debt is certainly stressful, it’s worth weighing the pros and cons of any debt consolidation program before signing up. Here are some pros and cons to ponder:

Pros

  • Multiple payments are combined into one payment, likely making it easier to pay on time.
  • Credit counseling could help a borrower get back on track with tools like budgeting and other financial advice.
  •  Some programs can help negotiate lower interest rates, fees, possibly creating a more affordable payback plan.

Note: Because lowering interest rates may extend the number of time borrowers would pay their debt off, they may end up spending more on interest in the long run.

Cons

  • Debt consolidation programs do not reduce the principal amount of debt owed.
  • They can easily be confused for more predatory programs offered by some debt consolidation settlement companies.
  • Some programs might charge fees.

Many of the legitimate counseling companies tend to follow a similar setup process, which typically includes an interview with a counselor to go over things like income, expenses, and current bills and loans. The counselor might suggest areas where spending could be reduced and offer educational materials.

The program may also help set up a budget and will send the proposal out to creditors to agree to any new monthly payments, fees, payment schedules, interest rates or other factors, Reputable programs should only charge for set-up and a monthly fee.

It is generally recommended to take extra care with any for-profit organizations requiring a lot of upfront fees, memberships, or fees for each creditor they work with on negotiation. There is no magic pill to reduce debt, so spending less and budgeting more have been key pillars of a healthy financial foundation.

No company should promise a quick turnaround for becoming debt-free overnight. Historically, credit repair has been a market tainted by fraud, so it’s recommended to tread carefully and do the research before signing on to any program.

Selecting a Debt Consolidation Program

One common and simple way to sign up for this type of debt management program is to contact a reputable nonprofit credit counseling agency. The U.S. Department of Justice offers a list of approved credit counseling agencies by state.

Along with ensuring the agency you’re considering is on this list, you may want to consider doing further research by asking your state attorney general and checking local consumer protection agency websites.

Debt settlement companies often try to sell themselves as the same service, so be wary and check to be sure the organization is offering financial counseling and not making promises to reduce the amount of debt owed.

Based on the interview and assessment of current income and debt, the counselor could either recommend a debt management program, or another solution which could be a personal loan, bankruptcy, or some other form of settlement.

The company should not promise any sort of quick fix or short-term solutions.

The National Foundation for Credit Counseling is responsible for certifying many of these counselors, who must complete a comprehensive training program certifying them to help and educate consumers regarding their finances.

Because most nonprofits are certified, it helps to read consumer reviews of these programs as well, to see how the company operates.

The next step is to check what services are offered and what fees will be charged, such as an initial sign-up fee and recurring monthly fee. Understanding the costs upfront is important, and can help someone avoid a possibly predatory, for-profit business.

Something else you may think to look out for: A settlement company may charge more fees initially on the promise to arrange a reduced lump sum payment of debts.

These companies often instruct  consumers to stop making payments entirely on their debt, which could affect credit rating and even may cause the creditor to send the debt to a collection agency. A legitimate program should offer financial advice and counseling on ways to help reduce debt.

Learn more:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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Village of New Paltz might expand eligibility for revolving loan fund | Local News

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NEW PALTZ, N.Y. — The village is considering expanding eligibility for a little-used revolving loan fund to include the needs of businesses being hit hard by the COVID-related economic slowdown.



Village of New Paltz trying to help residents get refunds from waste haulers

Village of New Paltz Mayor Tim Rogers




Mayor Tim Rogers said Tuesday that the $500,000 loan fund could be used to help businesses with more than just the purchase of personal protective equipment allowed under state and federal programs.

“We’re trying to piggyback off of the existing language for the revolving loan fund,” he said. “We just wanted to make it somewhat broad in terms of recognizing COVID impacts.”

One thing the village is considering is eliminating the rule that prohibits the use of the fund for emergency situations or business operations.

“Here we are flipping it and saying that you can,” Rogers said.

Guidelines for the loan program, which was established with funding from the U.S. Department of Housing and Urban Development, were last updated in 2013. The loan fund’s current interest rate is 3%.

Rogers said the fund has received only two loan applications over the past six years, and one of those was rejected.

“There’s only been one that we awarded and one that we straight up denied,” he said, noting that the rejection was because of the applicant’s bad credit history.

Rogers said the COVID-19 pandemic has created something of an economic irony in the village: decreased foot traffic in the business district but a significant increase in applications for building permits.

“[Village Safety Inspector] Cory Wirthmann believes our busy Building Department is partially a function of people traveling or vacationing less,” the mayor said. “ Money they would have spent is now going to home improvement wish list projects or just deferred maintenance, like finally choosing to replace the old roof.”

Comments about expanding the revolving loan fund should be emailed to  assistant@villageofnewpaltz.org. A loan application and information about the process can be found online at bit.ly/npaltz-loans.

For local coverage related to the coronavirus, go to bit.ly/DFCOVID19.

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Will Missing One Car Payment Hurt My Credit Score?

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The short answer is yes: skipping one car payment can hurt your credit score, but not until it hits a certain mark. One missed payment doesn’t destroy your credit score forever, but it can stay on your credit reports for years.

Missed Payments and Your Credit Score

One or two missed payments may not be enough to completely ruin a good credit score, but they can lower your credit score quite a bit. How much your credit score can drop depends on many things, including how much credit history you have and how much time has passed since your missed payment.

How much a missed payment can impact your credit score is heavily influenced by how many missed payments you currently have reported, your current credit score, your credit utilization, how many accounts you have, and more. In other words: your drop in credit score due to one missed car payment is likely to be unique to you. The drop in points could be anywhere from 10 to 100 points, or more.

Will Skipping One Car Payment Hurt My Credit Score?If you have a thin credit file or little to no credit history, one missed car payment can be devastating to your credit score. And, in some cases, having a good credit score and then a reported 30-day missed payment could hurt your credit score more because you have more to lose.

The severity of the missed payment matters too. If you’re 30 days on the payment, it’s not as bad as being 90 days late. Most creditors report missed payments in these timeframes: 30 days; 60 days; 90 days; 120 days; 150 days; and then delinquent/charge-offs after that. The longer you let that missed payment go on being missed, the worse it is for your credit score.

To bounce back from a missed auto loan payment, be sure to make that payment as quickly as you can. The sooner you make up that payment, the better off you are.

How Long Are Missed Car Payments Reported?

Missed and late car payments can remain on your credit reports for up to seven years. How much they damage your credit score lessens each year, but it can still impact your overall credit score years afterward.

Your payment history is the most influential part of your credit score: a whopping 35%. In terms of credit repair, this means making all of your bill payments on time is important. If you have an auto loan that isn’t currently being reported – meaning your loan and on-time payments don’t show up on your credit report – the missed and late payments are likely to be reported anyway. Even auto lenders that don’t generally report their loans to the credit bureaus typically report missed/late payments.

If you think you’re about to miss a payment and you want to avoid hurting your credit, you have some options to explore.

Ask Your Lender for a Deferment

Lending institutions understand that times can get tough. If you think you’re about to miss a payment, contact your lender right away and ask what options are available to you. Keep your lender in the loop if you’re going through rough times – the sooner you get ahold of them the better.

This is especially true right now, given the current pandemic. Many borrowers left without work have been forced to find alternatives to making payments and needed assistance with their car loans and mortgages. There is a process that allows borrowers to take a breather and gather themselves, and it’s called a deferment.

A deferment, in a nutshell, pushes the pause button on your auto loan. Most times, lenders pause the car payments for up to three months and add those payments to the back of the loan term. If you qualify, you may be able to recenter yourself and get back on track. After the deferment is up, the car payments resume and you continue paying as normal.

The only downsides to this option are that your interest charges continue to accrue, and your loan term is extended. However, in the grand scheme of things, a few more months of a car payment and interest charges is better than default or multiple missed payments!

There is a common stumbling block to deferments though: most lenders don’t approve these plans unless your current on the loan. If you’ve already missed one payment or more, then the lender isn’t likely to approve it.

Is Refinancing Your Auto Loan an Option?

If you’re struggling to keep up with your current car loan, refinancing for a lower monthly payment could be the answer.

Refinancing involves replacing your current loan with another one, typically with a different lender. Most borrowers refinance to lower their monthly payments by either lowering their interest rate or extending their loan term (sometimes both).

To refinance, you also need to be current on your auto loan. Most lenders that offer refinancing don’t consider borrowers with multiple missed/late payments on their car loan. Additionally, you generally need to meet these requirements for refinancing:

  • Must have equity in the car or the loan balance must be equal to the vehicle’s value
  • The car is under 10 years old with fewer than 100,000 miles
  • Your credit score has improved since the start of the loan

You may need to meet other requirements, depending on the lender you choose. Refinancing doesn’t typically require a “perfect” credit score, but you may need a good one to qualify.

Ready to Get a More Affordable Car?

If you’re struggling to make ends meet and worried about skipping payments, then it may be time to sell your car and get something more affordable. If you’re concerned that a poor credit score could get in the way of your next auto loan, then consider a subprime lender through a special finance dealership.

Subprime lenders are indirect lenders that are signed up with certain dealers. They assist borrowers in all sorts of unique credit circumstances, and they could help you get into a more affordable vehicle if you qualify.

Finding a subprime lender can be as simple as completing our free auto loan request form. Here at Auto Credit Express, we work to match borrowers to dealerships with bad credit lending resources in their local area, at no cost and with no obligation. Get started today!

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