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Bad credit scores can force U.S. drivers to pay more for insurance coverage than those with better credit despite having identical driving records, according to a recent study by The Zebra.
Nationally, drivers with exceptional credit scores (823 and above) pay just $1,673 per year, the data showed, while drivers with poor credit scores (under 523) pay an average of $6,254 a year for their car insurance, marking an increase of $4,581 every year, or 273%, for having a bad credit score.
“A lot of people don’t realize credit scores play a role in car insurance rates, not just loan or mortgage approvals,” said Beth Swanson, insurance analyst at The Zebra told PropertyCasualty360.com.
“Most states allow insurers to use credit-based insurance scores, which aren’t exactly the same as your credit score but rely on similar data,” she added. “While credit scores measure your ability to repay loans, insurance scores help insurers predict how likely you are to file a claim. Poor credit has been statistically linked with higher insurance risk, so even a modest improvement in your credit from fair to average could reduce your premium by nearly 18%, or about $284 a year.”
Other key takeaways…
- Depending on the laws about insurance in their state, drivers with Very Poor credit scores can see rate increases anywhere between 0% and 252%.
- Drivers can lower their insurance rate by an average of 54% by improving their credit score by just one tier.
- Laws around the use of credit scores and histories in insurance ratings are changing, and it could mean savings for some drivers.
Meanwhile, California, Hawaii, Massachusetts and Michigan are the only four states that don’t allow insurance companies to factor credit scores into their pricing. Maryland, Oregon and Utah have placed restrictions on the process.
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