Everyone knows that having a good credit score qualifies you for lower interest rates on loans and better terms on credit cards. But it can also affect the rates you pay for car insurance — sometimes quite significantly when the savings are measured over time.
The most critical factors in setting rates generally are your age, where you live, and driving record, says Des Toups, senior managing editor of CarInsurance.com, a rate-quoting Web site. But most insurers also check your credit when quoting a rate because there’s a correlation between your score and the likelihood you will file an insurance claim. The higher the score, the less likely you are to file one.
While checking credit scores for auto insurance quotes is widespread, it’s still somewhat controversial. One company, Cure Insurance, markets itself as one that does not match credit scores. “Think about it,” the round blue “spokes head” that functions as the company’s logo says on its Web site. “What does credit history have to do with your driving skills?” A handful of states, including California and Massachusetts, forbid the practice of checking credit scores for auto insurance quotes. But efforts to ban it nationally through federal legislation have failed.
An analysis from Carinsurance.com finds that drivers with credit scores over 750 – typically considered excellent credit — pay considerably less than drivers in the same age bracket with merely average scores.
The study compared the lowest rates offered for nearly 43,000 single-driver policies ensuring one car with liability, comprehensive, and collision coverage when the driver reports no violations or accidents. The credit score was calculated using data from TransUnion, one of the three major credit bureaus; it isn’t an actual FICO score, which is the number a lender typically uses. Instead, it’s a version of the so-called insurance score that insurers check when you apply for coverage. The insurance version uses the same information as a traditional credit score but gives more weight to factors deemed to reflect risk, like bankruptcy filings and maxed-out credit cards, Mr. Toups says.
The analysis found that young adults ages 25 to 34 with clean driving records, for instance, pay an average of $1,938 a year for full auto coverage. But those drivers with a credit score over 750 spend an average of $1,155 — a 40 percent savings.
Drivers in that same age group with credit scores of 650 to 749 pay an average of $1,658, a savings of $280 compared with the overall average; those with lower scores of 500 to 649 pay an average of $2,023, or $85 more. (Drivers with no credit file are penalized the most; they spend an average of $2,182, or $244 more than the overall average.)
The benefit continues through subsequent age brackets as well. Premiums tend to drop as drivers age, but high credit scores still mean you’ll pay less. For example, if you kept a good credit score until retirement, you’d save nearly $23,000 over the average premium paid by people with similar driving records, Mr. Toups says.
Do you think it’s fair that your credit history affects your car insurance rates?