Mounting evidence seems to show that your insurance premium is based less on how well you drive and more on socioeconomic factors like your marital status and your credit score.
An investigation by Consumers Reports found that across the country, credit scores played a major role in how much a person paid for insurance. In some cases, those with lower credit scores and a clean driving record paid more than someone with a high score and a moving violation.
Consumer Reports crunched the numbers for more than 2 billion car insurance price quotes from more than 700 companies with customers in more than 33,400 zip codes. Read how they did the math here.
Your Credit Score and Your Premium
Insurance companies in the 1990s quietly started using credit scores to predict claim losses, but Consumer Reports says that by 2006 it was a standard practice. California, Massachusetts and Hawaii are the only three states that ban the use of credit scores when calculating premium price.
The cost savings from these states could be significant. Consumer Reports found that single New Yorkers with good credit scores and a clean driving record would pay an average of $255 more in annual premiums than the same single New Yorkers with excellent credit scores. California singles, on the other hand, wouldn't get penalized.
Consumer Reports also found that because drivers are paying larger premiums up front, the increase after an accident isn't as high, about $430 in New York. But, the magazine argues, a New York driver might drive a little more carefully if he or she got the same increase as their Californian counterpart, who could fork over an extra $1,200.
Most people aren't aware that this happens, mainly because insurance companies don't advertise the practice or tell you if your insurance premium increased because your credit score took a hit.
With insurance premiums differing by state, Consumer Reports said the results varied widely. In some cases it could impact your premium more than any other factor.
Consumer Reports writes,
For our single drivers in Kansas, for instance, one moving violation would increase their premium by $122 per year, on average. But a score that was considered just good would boost it by $233, even if they had a flawless driving record. A poor credit score could add $1,301 to their premium, on average.
Fortunately, in North Carolina credit score seems to affect drivers less than those in neighboring states. On average, drivers with poor scores will only pay about $500 more than those with excellent scores. Comparatively, drivers with poor scores in South Carolina and Virginia could pay $2,000 more per year.
Further analysis by Consumer Reports shows that for single adult drivers with poor credit scores, insurance GEICO Govt. Employees will offer the best rates. NC Farm Bureau Mutual offers the worst. GEICO Govt. Employees also offered the best rates for those with excellent and good credit.
To drive to minimize the blow, the magazine recommends monitoring your credit reports to ensure that they're accurate, use major credit cards like Visa or MasterCard, and stay away from retail charge cards.
For more information and to read the full report, visit the Consumer Reports website. There you can also sign a petition asking state insurance commissioners to compel insurance companies to calculate your premium based on your driving record.