The Auto Channel
The Largest Independent Automotive Research Resource
Official Website of the New Car Buyer

Drivers with Poor Credit Pay 91% More for Car Insurance than Drivers with Excellent Credit

money (select to view enlarged photo)

SAN FRANCISCO--Oct. 24, 2013: Drivers with poor credit-based insurance scores pay almost twice as much for car insurance (91% more) than drivers with excellent scores, according to a new report. Drivers with median credit pay 24% more than those with excellent credit.

Credit is one of many factors that insurance companies use to evaluate risk and calculate premiums. Other examples include driving records, age, gender and past claims. Rather than FICO credit scores (which are commonly used by mortgage lenders, among others), insurance companies generally use a proprietary scoring model.

Insurance scores, like credit scores, are calculated using information in credit reports (including late payments, credit card balances and credit inquiries). However, they're used to predict the likelihood of a future insurance loss, instead of a consumer's creditworthiness.

"Considering all of the factors that go into car insurance rates, credit is actually one of the easiest to control," according to Laura Adams, senior insurance analyst, "Responsible habits, such as paying your bills on time and minimizing debt, pay off in many ways, including paying less for car insurance. 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."

Three states (California, Massachusetts and Hawaii) prohibit the use of insurance scores in setting car insurance rates.

Click here for more information:

Credit Scores and Car Insurance also released a free resource that educates consumers regarding credit-based insurance scores and explains how consumers can improve their scores and ultimately lower their insurance costs. The document answers key questions such as:

What is a credit-based insurance score? Why do insurers use credit-based insurance scores? What is the difference between a credit-based insurance score and a credit score? What factors affect a credit-based insurance score? 10 tips to improve your credit-based insurance score How to obtain free credit reports and insurance quotes

The free resource is available here:

White Paper Downloads commissioned Quadrant Information Services to examine how credit affects car insurance premiums. Quadrant calculated rates using data from six large carriers in all 50 states. Assumptions included policy limits of $100,000 for injury liability for one person, $300,000 for all injuries and a $500 deductible on collision and comprehensive coverage.