Bad Credit Can Be Worse Than a DUI for Car Insurance Rates

If you’ve defaulted on your rent or loans, have a bad credit history or regularly fail to make payments on time, you may be denied car credit or even fail to get that apartment you wanted to rent. The figure finance companies get from their calculations and use to rate you is known as your credit score – and the higher it is, the better.

Your credit score helps them to determine the likelihood of you actually paying back any money they give you, or honoring your financial agreements in future – and whether it is worth the risk to them. In addition, it can be used to decide what rate of interest to charge you for extending you credit.

Credit Scores and Insurance Premiums

Logically you would assume there should be no correlation between your faithfulness in financial matters and wrecking your vehicle. Indeed, some states in the USA do not allow auto insurance companies to use credit scores to inflate premiums in this way.

Surprisingly enough however, while it’s not really clear why this is so, it’s been found that drivers with bad credit scores do tend to be worse drivers and therefore cost vehicle insurers money. The problem however, is that while it’s clear that a bad credit score does have an impact, it’s quite difficult to tell how big an impact this is and how much more of a premium you ought to pay for insurance. This isn’t at all helped by the complex rules insurance companies use to set their prices, rules they tend not to share with anyone.

Investigating Credit Scores and Insurance Rates

To try to get to the bottom of this Consumer Reports investigation examined over 2 billion insurance quotations obtained from 700 car insurance firms in the USA. They found that single adult drivers with a bad credit score or only a good credit score, ended up paying anywhere from between $68 to $526 extra per year for their insurance compared to drivers who had excellent credit scores. Taking the USA as a whole, on average, high credit rate scorers paid $214 less per year for their auto insurance.

In addition, Consumer Reports found that there were wide variations between how much poor credit scorers paid for their insurance depending on where they lived. In fact in Florida, it was found that a single adult driver (with a clean record and bad credit score) could end up paying almost 3 times as much for their insurance as one with an excellent credit score.

Bad Credit vs. DUI

The irony of all this is that what you or I would have expected to be a prime indicator that a driver is likely to be involved in a collision in future – A drunk driving conviction, doesn’t appear to matter as much to car insurance companies as their credit scores. In Florida, USA you can actually pay 40% less for your auto insurance if you have a drunk driving conviction and excellent credit, than a driver with a clean record and bad credit.

In short, some US car insurance firms were seen to prefer you to be a bad driver, than a poor money manager!