Your credit score could play a significant role on how much you’re paying for auto insurance a new study has revealed.
The study used a hypothetical 45-year-old, single female driver with a bachelor’s degree and no prior claims or lapses in coverage to determine how much annual premiums on auto insurance could differ by looking at a unique factor called a credit-based insurance score. Not to be confused with your standard credit score, a credit-based insurance score is calculated by insurance companies using information in your credit report. Most insurance companies use their own formula to evaluate your credit-based insurance score based on your credit history.
According to the study conducted by InsuranceQuotes.com, a median credit-based insurance score means you’ll pay 24 percent more for auto insurance than a driver with an excellent score. Those with a poor credit-based insurance score can see their premium nearly double, paying 91 percent more.
There’s good news though if you’re in California, Hawaii or Massachusetts. Those states ban insurers from using credit in order to set auto insurance rates. But for the rest of the U.S., 97 percent of insurance companies use credit-based insurance scores to set your auto insurance premium.
Even an insurance underwriting expert at Fair Isaac Corporation (FICO), Lamont Boyd, agrees that there is a correlation between credit history and insurance rates. According to Boyd, “About 40 percent of every consumer’s bottom line score will be driven primarily by whether or not you paid your credit obligations on time.”