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Your Credit Score Can Affect Your Auto Insurance Rates

By Remar Sutton, Consumer Spokesperson

Many major auto insurance companies may base the price of your premiums more on your credit score than your driving record. This is the finding of a major study performed by Consumer Reports over 2 years (2013-2015).

The study analyzed over 2 billion auto insurance quotes from every zip code in the U.S. and from the more than 700 insurance companies with the greatest share of customers in those areas. Only three states (California, Hawaii, and Massachusetts) have laws that don’t allow insurers to use credit scores in setting auto insurance premium rates. Finally, most insurers don’t use the standard FICO score but draw from selected data on credit reports to create their own proprietary scoring logarithms.

Although the process that insurers use to arrive at premium prices for individuals is complex and hidden from consumers, you can still take steps to fight for the best rate for you and your family.

  • Make sure your credit report is accurate. Federal law provides you one annual free credit report from each of the big three credit reporting agencies (Equifax, Experian, and Trans Union) at https://www.annualcreditreport.com).
  • Takes steps to ensure that your credit score is as high as possible.
    • Pay all your bills on time, every time.
    • Use major credit cards that insurers’ scoring models rate more highly, such as Visa, MasterCard, Discover or AmEx. Avoid using types of credit that insurers’ models may penalize you for, such as retail store credit cards, “instant credit” for big purchases, or finance-company credit.
  • Pay off your balances monthly or keep your balances low. The higher the percentage of your available credit you use, the lower your credit score.
  • Don’t open a lot of new credit accounts. Opening new credit sources frequently dings your score.
  • Shop around for the best insurance rates. Some insurers actually charge higher prices to customers whom they know (from data mining) are less likely to comparison shop or change companies. So at renewal time, comparison shop. Look carefully at features that are supposed to save you money, such as bundling auto and home insurance or discounts for security devices. Consumer Reports found that in most instances savings from such discounts was small. For example, savings from bundling insurance for single drivers was on average less than $100 annually.

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