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On average, drivers with a good credit rating pay 84% less for car insurance than those with poor credit. Car insurance companies in every state besides Hawaii, California, and Massachusetts take your credit score into consideration when determining your yearly premium. However, a recent study by the Consumer Federation of America (CFA) showed that this factor plays a more substantial role than you may think.
According to the study, drivers in Louisiana who have poor credit are at risk of paying more for car insurance than drivers who have been convicted of a DWI but have an excellent credit rating.
According to Rate Retriever’s quarterly insurance rates report, car insurance premiums in Louisiana cost drivers an average of $2,558 per year, 40.2% higher than the national average of $1,824. In Louisiana, a driver’s credit score plays a fairly large part in determining car insurance rates.
Rate Retriever’s report showed that Louisiana drivers with bad credit may pay up to 74% more for their car insurance when compared to those with good credit. The disparity is even more severe when looking at drivers with excellent credit scores, as they pay an average of 20% less even than those drivers with good credit.
The CFA’s study dug deeper into this wide price range, suggesting that car insurance premiums are not really a reflection of the risk a driver brings to a car insurance company, but rather of that driver’s socioeconomic status.
According to the study, drivers in Louisiana with a good driving record but poor credit pay an average of $905 more on their annual premium than drivers with DWI convictions and excellent credit.
Furthermore, this issue is not exclusive to Louisiana. The CFA found that Alaska, California, Hawaii, Massachusetts, and Michigan are the only states that had a higher car insurance penalty for DWIs than bad credit.
Keep in mind that California, Hawaii, and Massachusetts have regulations prohibiting car insurance companies from considering credit scores as a factor in rate determination. This means that there is only one state where credit score plays a role in insurance pricing that has a higher penalty for a DWI conviction than a bad credit rating.
Even then, the study found that drivers in Michigan with a DWI conviction and excellent credit are paying just $19 more on average than those with poor credit and a good driving history.
The influence that credit scores have over car insurance premiums has been a controversial topic in recent years. Drivers have found themselves wondering why they are being charged higher rates based on a factor that has virtually nothing to do with their ability to drive safely, but car insurance companies claim that research has shown that people with bad credit are more likely to file insurance claims.
Since there is evidence that bad credit is correlated with the number of claims a driver files, car insurance companies take on more risk when covering these drivers, which is why rates are higher.
Overall, if you live in one of the 47 states that consider credit score in car insurance pricing, doing what you can to improve your score is a good way to save money on your annual car insurance premium.
One of the best ways to save on your car insurance – even with a poor credit score – is to compare all the car insurance companies in your area to be sure you are getting the best rate.
Since car insurance rates are highly personalized, every driver’s rate will look different from company to company. Rate Retriever offers a simple quiz that helps you quickly compare personalized rates from car insurance companies in your area and find the best fit for you.