Nowadays, a perfect driving record is not enough to be saved from high auto insurance premiums. Car insurance companies use a variety of factors including a person’s credit score to determine how much people will pay. A recent study done by WalletHub.com discovered that the impact of a credit score varied by company. WalletHub analyzed 10 insurance providers such as Geico, Allstate, Farmers Insurance, Progressive, Liberty Mutual and State Farm.
The study found that there was a 65 percent difference between people with outstanding credit scores, and people who had a low score or no credit. In the study, they found that Allstate appeared to use credit score information the most; there was a 116 percent fluctuation of price between individuals with high credit scores and low credit scores. State Farm was found to show the least concern for credit score information with a 45 percent fluctuation in price.
The Fair Credit Reporting Act (FCRA) does protect people in states such as Georgia. FCRA issues the requirement that anyone who uses a credit report to take an adverse action must report it to the individual affected. In the case of auto insurance, if they were denied coverage or receive a high premium due to bad credit, the consumer must be notified.
Why do people with low credit score get charged more expensively? This became common practice due to a correlation found between high accident frequency and those with poor credit scores.
In most cases, having a good credit score lowers a person’s car insurance premiums. However, using credit scores to determine a person’s auto insurance rate has been banned in California, Hawaii and Massachusetts.
The good news for consumers is that insurance companies will renegotiate the premiums if an individual has made improvements on their credit score. The bad news is that this will not happen overnight. A person must pay off their debts and avoid late fees to have a good credit score.