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Poor Credit Record Can Double Your Auto Insurance Costs

Even an “average” score can raise premiums.

by on Oct.31, 2013

Too many bills? Too much credit card debt? That can impact your insurance rate. Photo Courtesy: InsuranceRates.com

Here’s another reason not to let those bills go unpaid: damaging your credit record can add significantly to the cost of operating your automobile.

A new study reveals that drivers with poor insurance scores pay nearly twice as much for auto insurance as those with excellent scores. Even those with average ratings can wind up paying a premium, according to the report prepared for InsuranceQuotes.com.

“Considering all of the factors that go into car insurance rates, credit is actually one of the easiest to control,” said Laura Adams, senior insurance analyst, InsuranceQuotes.com.

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Insurance scores are very similar to the credit scores that can influence whether you can get a car loan, for example, and what inter rate you’ll pay.  Both are calculated using such factors as credit card balances, late payments and credit inquiries, though insurance companies use a proprietary scoring strategy and are looking to predict the likelihood that you might file a claim in the future.

Someone who falls into the poor category will pay, on average, about 91% more than a driver with an excellent score, the survey reveals, while even those with median credit are paying about 24% more.

“Responsible habits, such as paying your bills on time and minimizing debt, pay off in many ways, including paying less for car insurance,” said Adams. “Consumers should monitor their credit reports at least once per year, get errors corrected and notify property insurers about positive changes. This could lead to hundreds of dollars in annual savings.”

She noted that three states – California, Massachusetts and Hawaii – bar the use of insurance scores in setting car insurance rates.

(Wondering what states offer the opportunity for the most insurance discounts? Click Here.)

Of course, credit records are just one of the factors that insurance companies consider when setting your premiums.  The most influential factor is generally a motorist’s driving record.  A series of accidents can send costs skyrocketing.  Location is another factor, with rates typically raised in communities where there are higher-than-average claims.  Some states, such as Michigan, limit the degree to which insurance companies can penalize customers who live in, say, a city like Detroit.

Age and sex are factors, as well, reflecting the fact that young motorists – males, in particular – routinely are responsible for higher claims, with the average family paying an extra 84% when a teen is added to the household policy..  According to the trade group the Insurance Institute for Highway Safety, drivers under 20 years of age are three times more likely to be involved in an accident than the population as a whole.

(Georgia is the most expensive state in which to own/operate a car. Click Here to find out why.)

Insurance rates have been rising at or above the inflation rate in recent years, the AAA forecasting that motorists will have wound up paying 2.8% more, on average across the country, this year.

On the positive side, there are ways to drive costs down – and not necessarily by moving to a “safer” community.  Being married and clocking relatively few miles can earn you a discount, for example, and young motorists who do well in school may qualify for “Good Student” that average around 16% below rates for less scholarly youth.

“The right discount can knock hundreds of dollars off your car insurance bill,” said Amy Danise, editorial director for another website, Insure.com.

The InsuranceQuotes.com study was conducted by Quadrant Information Services which calculated rates using data from six large carriers in all 50 states. The study assumed a policy limit of $100,000 for injury liability for one person, $300,000 for all injuries and a $500 deductible on collision and comprehensive coverage.

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2 Responses to “Poor Credit Record Can Double Your Auto Insurance Costs”

  1. kmcezat says:

    The use of credit score as an excuse to jack up rates is grossly unfair and unjustified. Driving record, age, sex, type of car, where you live — are all appropriate in determining ‘risk’. But credit score? That seems like nothing more than an excuse for taking advantage of folks whose credit was damaged in the (ongoing) Great Recession. Rotten.

  2. Jorge M. says:

    The unscrupulous insurance industry will use whatever excuse it can dream up to exploit consumers. Considering that auto insurance is mandatory – and it should be – even though many illegals and other people drive without any insurance…there is no legitimate basis for using credit score to determine insurance rates. I expect the ACLU or similar will eventually challenge this fraudulent activity by the insurance industry, in court and win. Then consumers will get 43 cents each from the settlement while the lawyers get tens of millions in fees.