5 On Your Side

Credit history revealed as most important factor for insurance companies

Posted September 9, 2015 6:19 p.m. EDT
Updated September 9, 2015 7:07 p.m. EDT

— Insurance companies are digging deeper to determine what they can charge insured drivers. Consumer Reports recently finished a two-year investigation of more than two billion insurance quotes from companies across the country.

According to the study, the most important finding—and likely the biggest impact on cost—is credit history. The score can take what kind of credit card consumers have into account, and whether there have been recent applications to other credit cards.

"That car insurance credit score is different from your FICO score, and how it figures into your premiums varies depending on the insurer and your state,” said Consumer Reports money editor, Margot Gilman. “Companies use it to predict not if you'll be a good driver but whether you'll file a claim."

A poor credit score caused rates to more than double in some states, according to Consumer Reports.

In Florida, for example, the excellent credit score premium was $1,409 and the poor credit premium is $3,826, which is higher than the $2,274 premium for someone with a DWI but excellent credit score.

For North Carolina, it’s the same for a single person with a clean driving record: $900 for an excellent record, $969 with good credit and more than $1,200 for people with poor credit.

Consumer Reports' research found some insurers penalize more for having poor credit than others.

North Carolina Farm Bureau Mutual charges $1,326 with a poor score. GEICO charged almost $500 less—$842 for poor credit drivers.

Only three states—California, Massachusetts and Hawaii—prohibit insurers from setting prices based on credit scores.

"Insurance premiums in those three states are based much more on how people actually drive, which we think is much more fair,” Gilman said. “But it does mean that if you have an accident in those states, your rates could go up higher than elsewhere."

Consumer Reports suggested correcting any inaccuracies with credit bureaus—Transunion, Experian or Equifax—if insurance companies tag insured drivers with low scores.