High Car Insurance? Low Credit Score May Be at Fault

Photo (cc) by LendingMemo

A 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? Share your thoughts below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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