Report highlights the effect that credit data has on insurance prices
Credit score has a lot to do with auto insurance rates, according to a recent report from WalletHub, a personal finance organization. The report focused on how a driver’s credit score affects their insurance rates in the United States. All states but California, Hawaii, and Massachusetts were examined for the report. In these states, using a driver’s credit history to price auto insurance coverage is illegal, so such information does not contribute to higher premiums.
Those with no credit tend to spend more for their auto insurance coverage
For the report, WalletHub requested quotes from the five largest insurance providers in the country based on two hypothetical drivers. The drivers were identical in every aspect, apart from one having a pristine credit score while the other had no credit history at all. According to WalletHub, there is a strong correlation between insurance premiums and a person’s credit characteristics. For insurers, credit history is often used to determine the risk a particular consumer represents. The higher the risk, the higher the premium.
Lack of credit history could lead to 50% higher auto insurance premiums
On average, drivers with no credit tended to pay approximately 50% more for their auto insurance coverage. Of course, credit is not the only factor that insurers use to price insurance coverage. Insurers also apply different weight to the value of credit history than others. Geico, for example, relies less of credit information than other insurers. The report shows that even quotes from this company were 32% higher for drivers without credit history than for those with good credit.
Insurers may not be forthcoming with how they use credit to price insurance coverage
Michigan may be home to the highest fluctuation in auto insurance rates based on credit information. The report found that those with a poor credit history tended to see as much as a 115% increase in rates. According to WalletHub, one of the greatest issues that consumers face concerning this issue is that auto insurance companies are not upfront with how they use credit information to price their policies.