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Car Insurance Premiums & Credit Scores

Posted By Jim On 08/15/2006 @ 8:07 am In Insurance | 2 Comments

Most people have known for a while now that your automobile insurance premiums are related in some way to your credit score, the higher your score the lower your premium. When compared to our common sense, this makes sense on several levels but never have I read of an investigation to figure out how closely those two are related until today. Consumer Reports published an article in which they investigated what auto insurance companies use in the credit score to determine your premiums.

It’s all statistics, but you might be surprised at the thinking behind it.

If you look at statistics then you’ll agree that under single male 25 drivers in sports cars are more likely to be in accidents than 45 year old married women in minivans, that’s a no-brainer. But, what separates one single male 25 driver from another? Well, turns out companies have done studies and saw that 30 of the 100 items in a credit score actually make a difference.

Age of oldest credit line – A 2000 study by Metropolitan Property and Casualty Insurance Company found that if the age of your oldest line of credit was between 25 and 29 years old, then you’ll probably only submit $60 of claims and pay out $100 in premiums. If you’re oldest account is a year old, then you’re likely to submit $95 of $100. This shouldn’t blow your mind though, because this is just a proxy for age.

Another point mentioned in the article worth noticing is that the insurance companies aren’t looking first at who is likely to be in an accident, they’re looking at who is likely to submit a claim if they have an accident. If you have an accident, your premium will go up if you claim it. If you have found financial footing and you opt to pay out of pocket, never involving the insurance company in order to avoid your premium hike, then that’s a plus for the insurer – they’re hoping to find that in your credit history.

There is a lot more to the article that I’m not going to go into but here’s an interesting quote:

Lamont Boyd, insurance market manager at Fair Isaac, says, “Two-thirds to three-quarters of customers are getting better premiums because of credit-based insurance scores.”

It’s an interesting read, look for it at Consumer Reports [3].


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[3] Consumer Reports: http://www.consumerreports.org/cro/personal-finance/car-insurance-8-06/overview/0608_car-insurance_ov.htm?AFFID=I58RSS4

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