Save on Car Insurance by Having a Good Credit Score

Here's a piece from Money Central that lists five people who check your credit. They are interested in your credit score for one reason or another -- an indication of your ability to pay, an indication of your trustworthiness, etc.

One of these five is insurers, and what I found interesting is how much you could save on insurance if you had a good score. Conversely, if your score is bad, you can expect to pay more. The summary:

The majority of auto insurance companies use your credit score when determining your rates, and the practice is also common among home insurers. A recent survey by Consumer Reports among eight popular auto insurers found that drivers with top scores could pay up to 31% less on their premiums than if credit scoring wasn't factored in, while those with bad scores would pay as much as 143% more.

This is why even Dave Ramsey needs to consider his credit score. ;-)

Comments

[Fellowes]

I'm learning this lesson the hard way. I did a post on my renter's insurance about a week ago. The bottom line is that as my credit score has dropped, the rate for my renter's insurance has more than doubled. The only saving grace is that auto insurers, at least in Washington State don't check your credit score for renewals; just for the initial policy.

[Mama Money]

Does anyone know that if this is a hard pull? So if you're shopping around for new car insurance, would this be a hard pull or a soft? Thanks!

[Chris]

I rather think tying rates to credit scores is ridiculous. Credit scores can drop for any number of reasons, such as a divorce. Does a divorce make someone more likely to have an accident? How does foolishly buying a plasma TV and being unable to pay for it increase your odds of crashing into a median?

There may be a correlation between credit scores and accident rates (wait, now renters insurance rates also, huh?) but I don't think its a causal relationship. Might as well start keeping criminal records on people who buy ice cream right? (violence increases as ice cream sales go up, after all)

Your renters insurance doubled because your score lowered? That's just outright gouging, and it makes absolutely no sense. How does it help the insurance companies to price gouge someone with bad credit and probably tight finances? This is not a game of rates determined by the rates of defaults, insurance is pre-paid for the term! If you can't pay at renewal time, your policy just gets canceled. Simple as that. Hike renters insurance rates for people who are already having financial troubles and they're more likely to just not renew. How does that help?

I think the credit-score tie in to insurance is just another way to get more money out of us. They know Americans are deep in debt and are preying on it.