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How Bad Credit Can Affect Your Auto Insurance Rates

Unless you live in California, Hawaii or Massachusetts, if you have a less than stellar credit score you could be paying more for your auto insurance. That’s because states, with the exception of three, are allowed to charge you higher premiums if your credit score isn’t excellent. This practice is legal in 48 states.

You may be wondering, “Wait, what? What does my credit record have to do with how well I drive?” It’s all about statistics, and according to the FCC, poor credit actually correlates with being a higher risk for insurance providers.

Credit Scores Versus credit-based Insurance Scores

Insurers don’t based premiums on credit scores alone; it’s still important to have a clean driving record if you want to save. Providers look at your credit score, factor in some other issues and then come up with something called a credit-based insurance score.

Credit-based insurance scores aren’t influenced by information like job, income and gender. Driving history, number of claims you have submitted and so forth are taken into account. Your driving history might carry more weight, depending on how your insurance company does their math.

How Much More You Could Pay With Bad Credit

If you have a poor credit-based score your premiums can be significantly higher than they would be other wise, depending on the state you live in. Consumer Reportsstates that, for a single driver, while one moving violation could increase a premium by an average of $122 per month, a credit-based score that is merely good can bump a premium up by an average of $233 a month. That’s means paying $2,796 more annually.

How Does Your Credit Score Affect Your Premium?

State use different formulas to determine premium increases, so how much you could pay has something to do with where you live. Looking at single adult drivers, North Carolina insurance companies averages are the lowest in the country; good credit can result in an average of $68 more per year than someone with excellent credit while poor credit can lead to an average of $320 more. The highest average increase award goes to states like Nevada, where good credit can bump a premium up by $338 and poor credit can bring a $2,028 increase.

Find out how your state does using a Consumer Report state-by-state evaluation.

The Moral of the Story

If you want to avoid higher premiums (and who doesn’t?) the trick is to drive well and maintain great credit. That’s what it comes down to.

To learn more about your state’s guideline, go to the Einsurance auto insurance page and use our interactive state insurance guide tool.

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