Dirty Insurance Secret #2: Your Credit Score Has An OVERSIZED Impact on Your Car Insurance Rate.

So why on earth should your credit score have anything to do with your car insurance rates? It’s not obvious… and is quite controversial. Nevertheless, insurance companies have discovered that credit-based insurance scores can accurately predict accident potential. Drivers with better/higher scores tend to get into fewer accidents and cost insurance companies less than folks with lower-scores.. (Nerd Alert: here one study and another that validates some of these conclusions.)

Yes, it doesn’t seem fair that those who can least afford it end up paying the most. That’s why some states don’t allow credit scoring at all. California, Hawaii and Massachusetts have banned insurance companies from using credit this way for pricing car insurance. So, if you live in one of these states you can skip reading on…or just gloat to see what you’re missing (word of the day: schadenfreude).

Here’s what credit scoring can mean for your car insurance rates:

If you have an excellent credit score, you’ll pay on average nearly 23% less for your insurance than a person with an average credit score. (These reductions range from -6% in Rhode Island to -28% in Nevada.)

On the other hand, if you have a bad score you’ll pay +83% more based on national averages. These surcharges range from +64% in New Mexico to +202% in Oklahoma over the average credit score.

What can you do if you have a poor credit score and need affordable car insurance? The best thing is to improve it. Or you may also want to put your spouse as the policyholder if he or she has a better credit score. Or use one of the few insurance companies that do not use credit as a rating factor. Or, you might want to consider moving to CA, HI or MA where credit scores don’t count. And you’ll always want to compare companies.