Should car insurers use your credit score to drive up coverage costs?

• Most drivers don’t know it credit scores they generally take into account their insurance premiums.
• Drivers with low credit scores can pay twice as much as those with excellent scores.
• But studies disagree on whether banning insurers from using credit scores would lead to lower premiums overall.

As Michigan becomes the fourth state to eliminate the use of credit scores as a reason to raise or lower car insurance rates, there is debate as to whether this will help or harm drivers. state. Car owners in Michigan, once home to the top three U.S. automakers, now pay up to $ 6,000 to get behind the wheel. The answer to the debate, according to two studies, is that eliminating the credit score will help some drivers … but it will hurt others.

A national study by insurance quote website Zebra, based on zip codes across the country, found that drivers with poor credit, defined below 580, pay about twice what drivers pay with a Exceptional credit of 800 or more, Alyssa said. Connolly, Zebra’s Market Insights Director. About 20% of drivers make the cut. I wasn’t sure how many drivers were on the lower level.

But a contrary study by the Mackinac Center states that preventing auto insurers from using credit ratings “will not produce overall savings in the auto insurance market,” according to study author Michael Van Beek. The only result would be that “some consumers pay more so other consumers can pay less.” And it can also make the market less competitive. Most states allow credit scoring in other forms of insurance, such as home, life and even pet coverage, Van Beek said.

Three other states, California, Hawaii and Massachusetts, have so far banned insurers from using credit scores, while most others allow it. Insurers say this reduces costs for 50 percent of policyholders, according to Loretta Worters, vice president and spokeswoman for the Insurance Information Institute, which represents the majority of car insurers. Worters said those with low credit scores are more likely to file claims and because insurers have to pay those claims, they have to charge more. A 2007 Federal Trade Commission study acknowledged this.

But Connolly of Zebra argues that the jury is determined. While California, which banned the use of credit scores, has high premiums, Hawaii, which also banned the practice, is in the top 10. Connolly also noted that most drivers, almost 60%, do not even know that their credit scores are taken into account in the car. insurance rates.

“No gold ticket”

Connolly told Connolly that forcing car insurers to be blind to credit scores and other “non-driving factors” is unlikely to help Michigan drivers much. The state has suffered an insurance plan that offers “unlimited protection against personal injury” in the event of an accident.

“It costs a lot of money and has caused a lot of fraud,” he added. The car insurance reform package just signed by Michigan Gov. Gretchen Whitmer would also limit personal injury protection. “But there is no golden ticket to lowering rates,” Connolly warned. And that’s probably true for the other 49 states as well.

If you are a safe driver with low credit, Connolly suggests that:

• Explore telematics (which informs insurers of driving behavior) and usage-based insurance, which give the insurer a window on how and how much you drive.
• Check with other insurers. Your current operator may not have the most up-to-date information about your credit rating and some insurers do not use it at all.
• Improve your credit score, as a better score can mean better insurance rates. Watch the videos above to find out how.

In:
• Michigan