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Auto Insurance Premiums Can Double for Drivers with Bad Credit



Many drivers are not aware that their credit score can affect the auto insurance premium more than the driving records.  And if you think your zip code can sabotage your auto insurance rates, you should see what happens if you let your credit slip.

Drivers with poor credit pay twice as much -- 91 percent more on average -- than those with excellent credit scores, according to InsuranceQuotes.com. Those with average credit pay 24 percent more.

Of course, credit is just one of dozens of factors that determine your auto insurance rates. Where you live, the car you drive, your driving record, age and gender all affect your rates too. But when you hold those other factors constant, a bad credit score delivers a wallop in most states, according to research commissioned by InsuranceQuotes.com. (Three states -- Hawaii, California and Massachusetts -- bar insurers from considering credit scores in setting auto insurance premiums.)

InsuranceQuotes.com commissioned Quadrant Information Systems to examine the effect of credit scores on average rates using data from six large carriers in all 50 states. Since three states don't use credit as a factor, those states actually pull down the average rate hike you'd suffer by having bad credit. When those states are excluded the average cost of a bad credit score is 116 percent, according to a spokesman for InsuranceQuotes.com.

Why would your credit score have such a huge impact on your auto insurance rates? That's not entirely clear. Perhaps people who have bad credit are so worried about money that they drive erratically -- or maybe they're unable to handle the smaller claims that another driver might pay out of pocket. Or, there's a chance that if you're meticulous about your credit, you're also meticulous about your car, making certain to keep it secured in a locked garage, where it's less vulnerable to break-ins. All insurance companies know for sure is that bad credit statistically leads to a higher incidence of claims. More claims lead to higher rates.

On the bright side, credit is relatively easy to manage. And, even though insurers use a slightly different credit score than banks, the factors that give you a good score versus a bad one are nearly identical. Boosting your credit score can not only get you lower insurance rates, it can cut your borrowing costs and put you in a better position to get a new job. (Many employers consider your credit history when offering work, too.)

"Considering all of the factors that go into car insurance rates, credit is actually one of the easiest to control," says Laura Adams, senior insurance analyst at InsuranceQuotes.com.

Auto Insurance Premiums Can Double for Drivers with Bad Credit Reviewed by Blogs on 4:27 PM Rating: 5

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