A study of the top five U.S. auto insurers found an average 49% difference in premium costs for someone with an excellent credit score compared with someone with no credit history. The analysis by WalletHub, a Washington, D.C.-based personal finance social media site, priced insurance for two hypothetical drivers based on identical factors except for their credit scores.
Several auto insurers use credit scores to help set premiums, judging that people who tend to be more reckless with their bills also tend to have more accidents. The effect of a low score on car insurance costs can be dramatic.
Credit scores have the least impact on insurance premiums in Connecticut (15% fluctuation) and the largest impact in Michigan (115%), according to WalletHub. California, Hawaii and Massachusetts have banned insurers from using credit data to price auto premiums.
Not all auto insurers give credit scores the same weight. Farmers Insurance appeared to rely on credit data the most with a 62% fluctuation in premiums nationwide, the study found. That means people with high credit scores might want to price insurance with Farmers before other insurers.Geico used scores the least, showing a 32% fluctuation nationwide, meaning people with low scores might want to start with the company when pricing insurance. The other three companies in the study included Allstate, State Farm and Progressive.
WalletHub also rated the top 10 insurers nationwide on transparency regarding their use of credit scores. Progressive came out on top for transparency with a perfect score of 10, while Liberty Mutual was last with a score of 4.5.
Criteria included determining how easy it was for consumers to find out if an insurance carrier was assessing their credit information and which credit reporting agency was being tapped.