If you’re a good driver and you have bad credit, you’re paying more for car insurance, according to a new study.
That study from the Consumer Federation of America looked into how auto insurers use credit scores to help determine the rates they charge consumers.
On average, a driver with a ‘poor to fair’ credit score has to pay twice as much for auto insurance as a driver with excellent credit- even if their driving safety history is the same, according to the study.
This means, on average, those with bad or poor credit are paying $491 a year more for basic auto insurance than drivers with good credit.
The problem, according to the report, stems from the fact that many insurance companies consider your credit information as a more important rating factor than a driving record when calculating your premium.
Consumer advocates say this is unfair to safe drivers, and it disproportionately impacts lower-income drivers and people of color.
"Consumer Reports, a couple years ago, looked at the difference between drivers with excellent credit but with a Driving While Intoxicated conviction compared to safe drivers with poor credit and found that safe drivers with poor credit pay more than the drivers who have a DWI and excellent credit. And that's again, just absurd. And it goes to the problem with using non-driving factors to set rates," said Abe Scarr, with PIRG, a consumer advocacy group.
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Only three states, Hawaii, Massachusetts, and California, prohibit insurance companies from using credit information in auto insurance pricing.
There’s now a bill in the illinois legislature that aims to stop insurance companies from basing their pricing on things like race, religion, gender and credit score.
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We reached out to the American Property Casualty Insurance Association- the primary trade organization for insurance companies for comment. They sent us the following statement:
“The Consumer Federation of America’s (CFA) report repeats misconceptions that have been soundly rebutted by numerous federal, state, and private sector studies. Most significantly, the CFA report fails to acknowledge that insurers’ use of credit-based insurance scores results in substantial consumer benefits. Credit-based insurance scores enable insurance companies to evaluate the risk of loss with greater accuracy, enhancing competition and resulting in savings for most drivers and fairer insurance rates overall because they are an accurate predictor of future losses. Eliminating this use of credit will result in the loss of savings for many consumers and result in rates which are less fair and accurate for all. The negative consequence of banning credit-based insurance scores was recently seen in Washington State, where insurance premiums rose for more than a million low risk drivers and homeowners, including seniors on fixed incomes.”
“The American Property Casualty Insurance Association (APCIA) is opposed to the Illinois Motor Vehicle Insurance Fairness Act legislation, which was introduced last session. The proposed Act would restrict the use of rating and underwriting tools that have been proven to benefit consumers and are accurate and effective in setting fair insurance rates. By using the variety of rating factors currently in use, insurers can assess drivers’ risks more accurately and price their product based on the likelihood and severity of insurance claims. The use of these tools benefits consumers and is the fairest way to set insurance rates.”
“Insurers do not collect or use racial or income information. The reduced insurance rates as a result of the use of credit-based insurance scores are available to everyone with similar good scores, regardless of race or income.”
