Got Poor Credit? Prepare to Pay Double (or Even Triple!) for Auto Insurance
Study: Your Credit History Makes Big Impact on Your Premiums
AUSTIN, TEXAS (October 19, 2016)—There is yet another reason to make sure you have good credit. According to a new report by insuranceQuotes, credit has a significant impact on what you pay for car insurance. Drivers with poor credit often pay double, or even triple, depending on where they live.
The study found that if you have fair credit, you’ll pay an average of 28% more for car insurance than a driver with excellent credit (up from 24% in 2013). And if you have poor credit, your premium doubles, increasing your rate by 104% (up from 91% in 2013) on average.
“What’s really concerning is that 42% of Americans aren’t aware that there’s a relationship between credit and insurance rates,” said Laura Adams, senior insurance analyst at insuranceQuotes. “Over 95% of U.S. insurance companies use credit to set auto premiums in every state except California, Hawaii and Massachusetts, where the practice is not allowed.”
Unlike the more commonly understood consumer credit score, which lenders use to predict how likely you are to repay a debt, a credit-based insurance score (CBIS) helps insurers know how likely you are to have an insurance loss and file a claim. The higher your CBIS the less likely you are to file a claim and the lower your rate.
Residents of these states see the greatest premium increases when credit drops from excellent to poor:
- Arizona — 226%
- New Jersey — 216%
- Nevada — 213%
- Nebraska — 206%
- Oklahoma — 201%
These states show the smallest increase (excluding Hawaii, Massachusetts and California):
- North Carolina — 51%
- Virginia — 75%
- Wyoming — 76%
- New York — 77%
- Connecticut — 86%
“Insurance companies set premiums based on the information in your credit history and typically use it only for an initial quote. So consumers who have improved their credit over time should request a new auto insurance rate in order to save money,” said Adams.
“What helps boost your consumer credit—paying credit obligations on time and not maxing out credit accounts—also helps increase your CBIS and keeps your auto insurance rate down,” said Adams.
The full state-by-state report is available at http://www.insurancequotes.com/auto/auto-credit-higher-insurance-premiums-101816.
Quadrant Information Services and insuranceQuotes calculated the average economic impact of credit on auto insurance rates using data from the largest carriers (representing 60-70 percent of market share) in each U.S. state and the District of Columbia.