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Should car insurance companies use your credit score to increase insurance costs?

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  • Most drivers don’t know it credit score usually included in their premiums.
  • Drivers with poor credit scores can expect to pay twice as much as those with excellent scores.
  • But studies disagree on whether banning insurance companies from using credit scores leads to overall reductions in premiums.

When Michigan became the fourth state Eliminate the use of credit score As a reason to increase or decrease car insurance rates, a debate is raging over whether this will help or hurt the state’s drivers. Car owners in Michigan – once the headquarters of three major US automakers – now pay up to $6,000 to get behind the wheel. The answer to the debate, according to two studies, is that eliminating credit scoring helps some drivers… but hurts others.

One national research Alyssa Connolly, Zebra’s, said on the Zebra insurance quotes website that, based on the nationwide ZIP codes, found that drivers with poor credit – defined as under 580 – would earn twice as much as drivers with poor credit. for drivers with a special credit of 800 or more. Director of Market Insights. About 20% of drivers make the cut. She wasn’t sure how many drivers were in the bottom class.

But one Contrasting studies of the Mackinac Center states that blocking auto insurers from using credit ratings “will not produce overall savings in the auto insurance market,” according to study author Michael Van Beek . The only outcome would be “some consumers pay more so other consumers can pay less.” And it can also make the market less competitive. Van Beek says most states allow credit scores in other forms of insurance, such as home, life and even pet insurance.

How to get your credit in good standing


Three other states – California, Hawaii and Massachusetts – have so far banned insurance companies from using credit scores, while most others allow it. According to Loretta Worters, vice president and spokesperson for the Insurance Information Institute, which represents most auto insurers, insurers say this reduces costs for policyholders by 50%. . Worters said people with low credit scores are more likely to file claims, and because insurance companies have to pay these claims, they need to charge more. A year 2007 Federal Trade Commission Research admitted this.

But Zebra’s Connolly argued that the jury didn’t like that. While California, which bans the use of credit scores, has high insurance premiums, Hawaii, which also bans the practice, ranks at the bottom of the table 10. Connolly also notes that most drivers, close to 60%, don’t even know their credit score is charged to the car. insurance rate.

“No Golden Ticket”

Connolly said forcing car insurance companies to be blind to credit scores and other “unfavorable factors” is unlikely to help Michigan motorists much. The state has adopted an insurance program that provides “unlimited personal injury protection” in the event of an accident.

She added: “It costs a lot of money and leads to widespread fraud. The auto insurance reform package just signed by Michigan Governor Gretchen Whitmer will also limit personal injury protection. “But there’s no golden ticket to lowering fares,” Connolly warned. And that’s probably true for the other 49 states as well.

If you’re a safe driver with poor credit, Connolly recommends:

  • Explore telecom technology (driving behavior reports back to the insurer) and usage-based insurance, giving insurers a chance to see how and how much you drive .
  • Check with other insurance companies. Your current carrier may not have the most up-to-date information about your credit rating, and some insurance companies don’t use this information at all.
  • Improve your credit score, as a better score can mean a better insurance rate. Watch the videos above to learn how.

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I am passionate about journalism and using new technology to spread news. I am also interested in politics and economics, and I am always looking for ways to make a difference in the world. I am the CEO of Janaseva News, and I am 24 years old.

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