New Study Shows Credit Score Impact On Auto Insurance Premiums

A new study by WalletHub has affirmed the conventional wisdom regarding credit scores and premium amounts. Bottom line: if you have bad credit, you can expect to pay more.

According to the personal finance website, Allstate seems to rely on credit data the most. The study revealed that there can be a 116 percent fluctuation in premiums between a consumer with great credit and a consumer with bad credit or none at all.

To the contrary, State Farm puts less emphasis on credit data, displaying only a 45 percent premium fluctuation.

“The research found a strong correlation between credit scores and claims and people with better credit scores are less likely to get in an accident and file claim,” said Odysseas Papadimitriou, CEO of WalletHub. “I was surprised by how much the companies rely on credit.”



WalletHub obtained quotes from five of the largest auto insurance providers in the United States, requesting comparisons between two hypothetical consumers who have identical profiles, save for the fact one has bad credit and the other excellent.

“In the average state, there is a 65 percent differential between the cost of car insurance premiums for a person with an excellent credit score and a person with no credit history,” the company found.

Geography differences found that credit data had the least impact on insurance premiums in Vermont (18 percent fluctuation) while the District of Columbia had the largest amount of change with a 126 percent fluctuation.

“Since insurance is regulated at the state level and each one has different rules about how and if credit is used and how often and what percent premiums can be raised, prices can vary greatly,” reports


The Takeaway If You’re Shopping For Auto Insurance

If you’re on the prowl for auto insurance or you’re just wondering why your premium is higher/lower than a friend who uses the same company and has roughly the same socioeconomic standing, the takeaway here is that credit matters, and the more you can do to boost your credit scores, the more it will help you secure a rate that is affordable.

If your credit score has problems, there are some things that you can do to start improving the odds:


1. Pay Off High Interest Debt First.

By “high interest debt,” we generally mean things like credit cards and payday loans. Compared to an average bank loan, these rates are sky high. That’s because the barrier to entry is less, and they end up giving too much purchasing power to individuals, who don’t always have the best track record of managing it.


2. Stack Future Payments.

Test time! When you first pay something off, what is your first instinct — Hey, free money!, or Whew, now I can start paying on my [insert other debt here]? If you answered the former, then you’ll probably end up with higher auto insurance premiums than someone who answered the latter. That’s because it’s more fiscally responsible to stack that “free money” onto another existing debt. It shows that you have a commitment to paying off your financial obligations. Ninety-nine-point-nine percent of the time, people who do that end up with higher credit scores, and according to the WalletHub study, that destines you for a better deal on your premium.


3. Never Miss, Or Be Late With, Payments If You Can Help It.

By simply making a payment on time, every time, your credit score will be around 30 percent better off than if you are constantly issuing payments late. To help yourself with punctuality, consider an app like Check, which links to all of your online expense/debt accounts, sends you advance reminders of when a bill is coming due, and even allows you to pay from the app. If Check isn’t your thing, there are other apps on the market that serve similar functions. We suggest you grab one and learn how to use it if you a) have a hard time remembering due dates, b) have too many bills to keep up with, or c) both a and b.


In Summary

Credit scores are so vital to every aspect of your life. If you want to buy a home or a car, you’ll need them to be their very best. But they also say a lot about risk, and when it comes to auto insurance, companies want their customers to be as safe and secure as possible. Thankfully, this is one area of your life over which you often have the most control. Use it to your advantage!

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