Arizona Drivers With Bad Credit Pay More For Auto Insurance
Think your credit score isn’t affecting your auto insurance payment?
Arizona drivers with poor credit pay more than twice as much as those with exceptional credit, according to an analysis of auto insurance rates released earlier this month – even if they have an impeccable driving record.
That’s an extra $ 1,500 a year on average, according to the insurance comparison site Zebra found, making Arizona the 11th worst in the country for credit-based price differentials.
The difference is larger in some cities in Arizona: nearly $ 2,000 in Phoenix, for example, and over $ 1,800 in Glendale.
“Most consumers know that credit plays an important role in their finances, whether they are applying for a credit card or considering a car or home loan,” the Zebra report states.
But they may not realize how much this affects car insurance, or that it affects it at all.
“Giving up just one level of credit” – say, from excellent to good – “can increase a driver’s auto insurance premium by an average of 17% or $ 355 per year,” according to the report.
“They don’t want these customers”
All but four states allow auto insurance companies to calculate and consider credit scores when determining rates, although the importance of those scores depends on the company.
Since last year, Farmer’s Insurance clients tended to pay the highest penalty for low credit scores, while Geico customers paid the least.
Insurers defend this practice by saying they have to measure risk somehow, and they point to credit as a legitimate and justifiable predictor. They cite studies that show correlations between lower credit scores and higher than average accident risks.
Consumer advocates, on the other hand, say insurers can show only that: a correlation, not proof that less than stellar finances make someone a bad driver.
They point to the 40% of Americans who would struggle to cover a $ 400 emergency, potentially lowering their credit rating, and ask: would these people suddenly become worse drivers as a result of this emergency?
“It makes no sense,” said Robert Hunter, Director of Insurance for the Consumer Federation of America. “The answer to the question” How can I get a low auto insurance rate? ” Should be safe driving. Do not accelerate, do not turn on red lights signals signals (safe driving.) Good credit doesn’t necessarily signal it. “
Hunter and other consumer protection experts argue that insurers are really using credit scores as a substitute for income to try to get low wages out of the market because it is illegal to consider income directly.
“Insurers want what they call multi-line customers: someone who will not only buy auto insurance but also home insurance, life insurance, banking products, a whole bunch of things after auto insurance. will have stepped in the door, ”he said.
“The poor can’t buy all of this, so they don’t want these customers.”
It could be worse, but it could be better
Zebra analysts used the same basic profile to compare $ 61 million in insurance rates, along with the same coverage limits and the same deductible amount.
The fictitious driver was a 30 year old single male with a good driving history who was looking to insure a 2014 Honda Accord EX. They only changed his credit rating.
Researchers found that credit scores had the greatest impact on rates in Nevada, Michigan, Kentucky, Missouri, and Alabama.
In Nevada, a driver with bad credit could pay more than $ 3,100 more per year for auto insurance than an identical driver with exceptional credit, according to the report.
Michigan recently joined with California, Hawaii and Massachusetts in passing a law prohibiting insurance companies from considering credit when setting rates.
The report’s findings indicate that insurers are taking existing laws seriously, as analysts have found the same rates for all credit levels for California, Hawaii and Massachusetts.
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