Credit History Can Impact Car Insurance Rates

Your credit history can impact pricing on car insurance rates.

Did you know that your credit history play a bigger role in their car insurance rates than your driving record does?

Consumer reports show that in many states a poor credit history can have a greater impact on insurance pricing than a DWI.  This is quite shocking.

Today, there are only 3 states that do not allow car insurance companies to use credit histories to determine premiums. These states include Massachusetts, California and Hawaii. What many people do not know is that insurance companies have their own credit scores based on taking a smaller amount of factors than the FICO scores use. The problem with using a credit history/score to determine an individual’s auto insurance rate is that companies are using socioeconomic factors to establish a premium rather than using a client’s actual driving record.

An example of this methodology can be seen in New York. Single drivers in this state with a “good” credit score as well as a clean driving record will pay about $255 more for auto insurance than they would have if they had an “excellent” credit score.
Whereas in Florida, a car driver who has a perfect driving record, but a “poor” credit report will pay $1552 more than would a driver who had a drunk-driving conviction and an “excellent” credit report.

 Credit scores can play a larger role in establishing a car insurance premium than does a driving record.

Car insurance companies have been using consumer credit histories for over 20 years. These companies argue that using credit histories is a very reliable predictor of which car drivers are likely to file a claim. This is because credit scores are a good measure of how well people can manage their money. Looking at how well an individual can manage their money is in turn seen by car insurance companies as a predictor of insurance claims.

While this may be a dependable method for insurance companies, there has been much debate over it after the Great Recession. Because many consumers’ credit reports were tarnished during the recession, this method has become extremely controversial. As a result, several states are working on banning this practice.

Feel free to reach out to us if you have any credit questions or reports you would like reviewed!


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