How Does Your Credit Rating Affect Your Auto Insurance Rates?

A recent study examined how insurance providers use a driver’s credit history to determine auto insurance rates. The study examined how auto insurance rates can vary from state to state and provider to provider for drivers with poor credit. In at least one instance, the study found that drivers with poor credit received auto insurance rate quotes that were more than double the amount of drivers with good credit.

Objectives of the Auto Insurance Rates Study

Researchers at the consumer finance website WalletHub.com specified three objectives in their auto insurance rates study. The first objective was to learn how transparent auto insurance providers were in how they used a prospective customer’s credit data in determining auto insurance rates. The secondary goal was to find out where they obtained the customer’s credit information. The study also sought to evaluate how much the customer’s credit information influenced the actual rate quotes.

Details of the Auto Insurance Rates Study

The auto insurance rates study evaluated data from 47 states and several major auto insurance providers, including Farmers, Progressive and GEICO. Only three states – California, Hawaii and Massachusetts – prohibit insurers from using a policy holder’s credit score when determining auto insurance rates. The researchers presented the providers with two sets of credit data, but identical driving records. The study then graded each company on its rate differences, its transparency and its use of the customer’s credit data.

Auto Insurance Rates Vary Widely

The researchers found that the average difference in auto insurance rates between drivers with outstanding credit and those with poor credit was nearly 50 percent. When the researchers obtained auto insurance rate quotes in Michigan, the driver with poor credit was quoted a rate that 115 percent more than a driver with excellent credit. In Connecticut, the difference was only 15 percent. The average difference in quotes from GEICO was 32 percent, while the difference for the average quote from Farmers Insurance was 62 percent.

Quotes on Auto Insurance Rates Use Specific Credit Info

A spokesman for the National Association of Insurance Commissioners stated that insurance providers do not use all the same data as a standard credit score when calculating auto insurance rates. Instead, the providers focus on aspects of the customer’s credit history to determine the customer’s risk profile. While the Federal Trade Commission is required to examine how insurers use credit information to calculate auto insurance rates, the agency has yet to pass any regulations regarding how these rates can vary.

Source: Consumer Affairs

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