High car insurance? Low credit score may be at fault

A new study indicates your credit score can significantly affect the cost of your auto premium.

By MSN Money Partner Jun 11, 2014 12:25PM

This post comes from Krystal Steinmetz at partner site Money Talks News.


Image: Car keys on insurance form ©Exactostock, SuperStockA perfect driving record isn't enough to save you from high car insurance premiums.


As if understanding how the insurance company determined your premium cost isn't already complicated enough, factoring your credit score into the mix is a curveball that many drivers don't expect.


Just how much impact does it have? A new study by WalletHub.com found that the weight of its impact varied by insurer and by state. WalletHub analyzed information from 10 insurance providers, including Allstate, Geico, Liberty Mutual, State Farm, Farmers Insurance and Progressive, in determining the weight your credit score has on car insurance premiums.


On average, it found about a 65 percent difference in costs for a person with an excellent credit score versus people with low scores or no credit.


Allstate appeared to utilize credit score information the most, leading to a 116 percent fluctuation between drivers with excellent credit and those with bad. Credit data seemed to have the lowest impact on insurance premiums at State Farm, with a 45 percent fluctuation in price.


WalletHub also said, "Credit data has the least impact on insurance premiums in Vermont (18 percent fluctuation) and the greatest impact in the District of Columbia (126 percent fluctuation)."


If you believe it's wrong that your credit score is used to determine how much you pay for auto insurance, you're not alone. Watchdog group United Policyholders says  California, Massachusetts and Hawaii prohibit insurers from using credit information in calculating car insurance premiums. It also said:

In other states, state or federal law requires the insurance company to provide you some important notifications -- the most important of which is the federal Fair Credit Reporting Act (FCRA) Adverse Action Notification. The FCRA requires any user of a credit report to notify the consumer if the use of that report resulted in an adverse action, which, in the case of insurance, would be denial of coverage or a higher premium than a consumer with an average or higher insurance credit score.

Federal law requires the insurance company to provide you with the credit score it used if you're paying a higher premium or you were denied coverage because of it.


Do you think it's fair for insurance companies to utilize your credit score in determining the cost of your auto insurance premium?


More from Money Talks News

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3Comments
Jun 12, 2014 8:49AM
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Unfortunately the article failed to tell us why insurance companies do this.  What does my credit score have to do with my ability to drive?  What the article also fails to reveal is that your home owners insurance premium is also affected by your credit score.  They claim that studies have shown people with lower credit scores have a higher incidence of filing a claim.  Did you know moving to another state will lower your credit score?  I didn’t until I moved last year – closing and opening a checking account, selling real estate (which closed a line of credit) buying real estate (opening another line of credit) and my position with the company I went to work for required background checks and a unusually deep credit probe (as it is a financial company).  It didn’t lower my credit rating a lot but enough that the insurance company charged me additional premium for both my home owners and auto policies. 

 

This should be illegal.  I find it difficult to believe that anyone that has a lower credit score is a greater risk.  Especially for someone like myself that has traditionally held a higher credit rating and had it lowered by a life changing event (like moving to another state).  The credit reporting agencies, Transunion, Equifax, Experian and Lexis Nexis all charge exorbitant fees from the insurance companies to provide information that is wrong 40% of the time.  Then they sell our private information for marketing.  That should be illegal too.  We all pay the bill in higher premiums.  

Jun 11, 2014 5:33PM
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Just another excuse for Corporate America to use bogus Credit Scores to reward the already Wealthy and punish the Working Poor and Fading Middle-Class.

This is the type of insanity that should start the next Real Revolution. It's not enough that the Wage Gap has moved from 40 to 1 to well over 400 to 1. Now these Crooks and Thieves are taking away the leftover crumbs. Soon, America will be just another Mexico. Record Wealth for some while Record Poverty for everyone else.

These elitists want to force everyone to be a Debt Slave. They don't want anyone to be a Cash Only consumer. They also want to Force everyone into Stocks regardless of current Risks. Meanwhile they are cashing out in Record Numbers. Hopefully Americans will get a freaking clue and start voting the Bought and Paid for Government which supports this insanity, out of office.

Jun 12, 2014 12:28PM
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Insurance is more than black and white, perhaps the most data intensive product that most Americans purchase. Rates are not just set by which state, but it is variable by zip code, fire district, crime rates, distance of commute, commute corridors, state licensing just to name a few. And yes credit history does give a valuable weight for the underwriters'.

There is a solution, but many don't want to hear about it. SINGLE PAYER INSURANCE. This is not only true for health insurance but all forms of insurance. Doesn't have to be the government that is the insurer, but it needs full participation from all and strict oversight to prevent corruption.

Remember insurance companies hold the greatest amount of wealth worldwide. Time to spread the wealth. A single payer insurance can also be a pool of insurers, they buy a piece and then share the profits or loses based upon their piece of the pie. Works well in other countries.

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