Credit Score and Car Insurance Premiums

Credit Scores are more important than ever with many car insurers looking at your credit score to help determine how likely you are to make a claim.  It doesn’t matter whether you believe that your credit score reflects how likely you are to make a claim. Insurers believe it, and most of them have made it an integral part of their pricing models.  The truth is people with high credit scores pay less for auto insurance than those with lower scores.  But how much less?  Over a lifetime, you could save enough to buy a whole new car!

A new study drawn from 42,809 online auto insurance quotes shows that drivers with credit scores over 750 save an average of $783 a year compared with a typical driver in the same age bracket with merely average scores. Someone who maintained a top-notch score from the time he or she turned 25 until retirement would save $22,815 on premiums.

Credit is only one of countless possible rating factors when you buy auto insurance. But the correlation is quite clear: Good credit, and the lack of “risk” it implies, is very appealing to insurers.

The link between credit history and risk is one auto insurance companies defend vigorously. Your driving record — known as a motor vehicle record (MVR) — is notoriously incomplete, and many insurers feel that a credit report is more complete than an MVR, thus giving the insurer a better look at your potential risk. 

Tickets are often bargained down to a non-reportable fine or a deferral rather than a conviction. Accidents can be settled outside the view of police and insurance companies. And courts can be spotty about sharing conviction data.

 Credit Reports, on the other hand, are governed by market forces. There are three competitors in the market, each providing data that ultimately becomes part of ratings calculations.  This is just another reason why the understanding how credit scores work is so very important.

Insurers use a special  scoring model that uses the same data that other credit scores do, weighted to emphasize risk rather than creditworthiness. (Do you run credit cards right up to their limit? Danger! Danger! Bankruptcy? Do not pass go.) Medical debt is typically excluded from insurance credit scoring model calculations.

The chart below shows the average lowest premium offered to drivers in each age category then breaks that bracket down by credit score range.

Age and credit score Average lowest premium
16 to 24 $3,152
  500 to 649 $2,692
  650 to 749 $2,387
  Above 750 $2,515
  No credit file $4,191
25 to 34 $1,938
  500 to 649 $2,023
  650 to 749 $1,658
  Above 750 $1,155
  No credit file $2,182
35 to 44 $1,818
  500 to 649 $1,906
  650 to 749 $1,632
  Above 750 $1,127
  No credit file $2,048
45 to 54 $1,614
  500 to 649 $1,729
  650 to 749 $1,449
  Above 750 $1,032
  No credit file $1,787
55 to 64 $1,446
  500 to 649 $1,599
  650 to 749 $1,337
  Above 750 $968
  No credit file $1,447
65 and over $1,461
  500 to 649 $1,727
  650 to 749 $1,512
  Above 750 $1,057
  No credit file $1,656


Currently only California, Hawaii and Massachusetts forbid the use of credit scores in auto insurance rate calculations.



About jenniferhamby

Jennifer Hamby, Executive Vice President of My Credit My Future, has worked in the financial sector since 1996. She is dedicated to educating consumers on financial education and responsibility. Having worked in Data Facts’ Nashville office since 2007 as an account executive, Hamby realized the need for financial education that was informative, yet easy to understand and attainable. Partnering with both Junior Achievement, and Tennessee Jump$tart, in providing financial education, opened her eyes to the tremendous benefits in providing financial literacy and resources for consumers to aid in making better financial decisions.
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