Everyone knows you need auto insurance to drive. It’s the law, everywhere but New Hampshire. We also know that credit scores dictate what types of credit cards and loans consumers can get. But most people are in the dark about the connection between credit scores and car insurance.
That being the case, Washington D.C.-based free credit score and report website WalletHub set out to see just how much credit data affects the cost of insurance policies in each of the 50 states and the District of Columbia.
The study was conducted by comparing the cost of policies from five of the country’s largest auto insurance companies for a pair of hypothetical applicants who are identical save for their credit standing: One has excellent credit, and the other has no credit. The study also examined how transparent the major car insurance companies are regarding their use of credit data and where they get it.
Key findings
• People with no credit pay 65% more for car insurance than people with excellent credit, on average. Drivers with no credit pay at least twice as much in Pennsylvania, New Jersey and Michigan.
• Farmers Insurance seems most reliant on credit data, with credit newcomers paying over twice as much as excellent-credit customers. Even GEICO (least reliant) has a 40% penalty.
• The five major auto insurance companies use credit data in 90% of the states in which they operate, on average. Only Progressive uses credit data in all of the states it serves.
• Travelers is the most transparent about its use of credit data, providing a clear disclosure when generating quotes.
• How much excellent credit, on average, can save a consumer on auto insurance:
50% – Farmers
44% – Allstate
37% – State Farm
35% – Progressive
29% – GEICO
SEE ALSO: Americans driving less, yet most not aware of money-saving insurance options
Methodology
In order to determine the impact of consumer credit data on car insurance premiums, WalletHub collected premium quotes from the websites of five of the largest insurance providers in the U.S., based on the total number of insurance premiums issued, according to SNL Financial. In light of the fact that insurers use numerous variables in pricing their policies, the study obtained quotes for two hypothetical consumers, identical save only for their credit history. More specifically, one consumer has excellent credit while the other has no credit history.
The insurance coverage details were used as guidelines, as different states have different requirements. Where WalletHub was unable to match the coverage details to the above specifications, it chose the value closest to its base case data, or the cheapest option for the coverage limits that were available. State-specific and other miscellaneous taxes have been included in the quote as needed.
In order to receive a quote from the insurance provider websites, a specific zip code was required. For each state in which the company was active, WalletHub chose zip codes where the average household income was closest to the average income for the state as a whole. Data was collected from May 25-June 25, 2017.
