Study: Credit scores can have big impact on insurance rates

Pittsburgh Post-GazetteJune 15, 2014 

— In case you needed another reason to pay your bills on time, a new study by WalletHub has found that credit scores have a surprisingly big influence on what you pay for car insurance.

The study found that insurance premiums among five of the largest auto insurers nationwide averaged 65 percent higher for a driver with no credit history versus someone with excellent credit.

Because many factors go into pricing premiums, the percentage difference won’t hold true for all consumers, the study noted.

Nevertheless, credit scores will have a significant effect on what you pay, said John Kiernan, senior analyst with WalletHub, a Washington-based social media site focusing on personal finance topics. “Hopefully that will lead people to give a little more TLC to their credit scores, and manage loans and credit cards more responsibly,” he said.

The study found that among insurers, Allstate relied on credit data the most, resulting in a 116 percent difference in premiums, while State Farm relied on those data the least with a fluctuation of 45 percent. In the middle were Farmers Insurance, Geico and Progressive.

Kiernan said consumers could use the results to help them shop for a better rate.

“If your credit standing isn’t great, you might want to gravitate to a company that relies on credit scores less,” he said.

Conversely, people with good credit might want to check first with companies that give credit data greater weight.

The results also help to explain why insurance quotes can vary widely between companies, Kiernan said.

In comparing rates by state, the study found credit data had the least effect on insurance premiums in Vermont (18 percent variance) and the greatest effect in the District of Columbia (126 percent).

In Pennsylvania, credit scores accounted for a 43 percent fluctuation, below the national average of 65 percent. “People in Pennsylvania have a little less to worry about in that regard,” Kiernan said. Nevertheless, “43 percent is still a pretty big fluctuation.”

Washington state showed a 74 percent fluctuation.

WalletHub also looked at how transparent insurers were about using credit scores to help set rates.

Among 10 top insurers nationwide, Progressive received the most points for transparency, while Liberty Mutual was rated the worst.

“A lot of insurers aren’t being as transparent as they can be,” Kiernan said. Consumers need to know that they may have a tough time finding out from insurers how much they rely on credit scores, he said.

While many people know that motorists’ driving record and type of car they have influence rates, many are surprised to learn about the use of credit scores, he said.

“Understanding that fact, and that a lot of different factors go into your quotes, will hopefully help people understand the importance of comparison shopping (for insurance) and improving their credit scores.”

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