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Have Good Credit? You May Be Paying More for Car Insurance

June 24th, 2016 · No Comments · Credit Scores, Insurance

by Staff

Car insurance premiums are higher with good credit

It’s no secret (anymore) that car insurance companies take your credit score into account when determining your premiums. What’s a little shocking to learn, though, is that you’re not just penalized for bad credit. Even if your credit is good, you’ll likely pay higher premiums. In fact, it takes excellent credit to get the best rates.

Consumer Reports Breaks It Down

In its special report on car insurance secrets, Consumer Reports provides a state-by-state breakdown of how bad, good, and excellent credit scores affect insurance premiums. The exceptions are California, Hawaii, and Massachusetts, as these are the only states in the nation that do not allow credit scores to factor into car insurance rates.

Take Colorado, for example.

The average new-customer premiums for adult single drivers are as follows:

  • If you have excellent credit, $1,121
  • If you have good credit, $1,356
  • If you have poor credit, $2,773

What’s Wrong with This Picture?

Credit scores are based on how you have used credit in the past. Thus, it’s used to determine how you might use credit in the future. Okay, that makes sense. But isn’t using credit scores to predict driving behavior like comparing apples to oranges?

The way I’ve used credit in the past isn’t as good of a predictor of how I’m going to drive in the future as how I have driven in the past. Yet, Consumer Reports states: “Your credit score could have more of an impact on your premium price than any other factor.”

But here’s the real kicker.

Using the same Colorado example above, you’ll pay more than $1,000 more in premiums if you have bad credit than if you have excellent credit with a DWI.

What to Do About It

First, check the Consumer Reports map to see how credit scores affect premiums in your state. Once you’ve clicked on your state, be sure to scroll all the way down to the bottom of the page for a list of the best insurance companies relative to your credit (e.g., excellent, good, or poor).

Second, keep working to improve your credit score.