Does my credit score affect my auto insurance premium?

Max

Atlanta Georgia

Thank you for your question, Max.

Georgia auto insurance companies have been looking at the credit reports of prospective customers for years, but it is only recently in the past twenty years or so that, with the advent of computers and the internet, they have been able to gather that information into a final number, called an insurance score, which is used in the calculation of your auto insurance premium. This insurance score, based on information in your credit report, can be the difference between a person with a good driving record but a high insurance premium, and another person with the same record and a much lower premium.

• Is it legal?

In some states, the question has come up as to whether or not credit scoring with car insurance premiums is discriminatory against low income and minority groups. While it does affect people who fall into these categories more than most, it doesn’t anymore than credit scoring affects people when buying a car or doing anything else that requires credit.

As great as it would be for auto insurance companies to give out premiums that are low cost regardless of risk, that is simply how business works. In order to make money, they need to charge the people who will cost them more money higher premiums, so that the people who are less likely to file a claim don’t have to pay enormous premiums. Insurance companies make a lot of money, but the profit margins aren’t as consistent or large as with other types of companies, so it is a kind of tightrope walk.

• Why do they do it?

Now that we’ve covered the fact that insurance companies need to charge more to people with higher risk, how are people with bad credit histories higher risk? After all, your credit score doesn’t affect your driving, does it?

Technically, it doesn’t, but there are a lot of factors that don’t necessarily affect your ability to drive, such as your grade point average, which auto insurance companies consider when figuring out what your premium will be.

What companies have figured out is that people with bad credit history tend to file more claims than people with good credit history. One of the reasons is, for example, that people who live in dangerous areas are more likely to have bad credit, and thus are more likely to have their car stolen, which would raise comprehensive insurance rates.

Some people claim that this credit report shouldn’t be used by Georgia auto insurance companies, because correlation is not the same as causation. That means that just because people who have bad credit scores file more claims, it doesn’t mean that the credit score had anything to do with it.

Cheers,

Fashun Guadarrama.