New Study Indicates Low Credit Score Drastically Increases Car Insurance Costs

Most people in the United States who have poor credit scores pay about double for their car insurance coverage when compared to people with great scores. The sad thing is, though, that about two-thirds of Americans do not know what their credit score even is. A recent study crunched the numbers and came up with interesting results that people with low credit scores need to be aware of.
You probably already know that your credit score is important for determining how much you will ultimately pay for mortgages, car loans and other lines of credit. You may now be aware, however, of just how much of an impact your credit score has on the price you pay for your car insurance coverage. Data from millions of Americans was recently analyzed and the results are pretty eye-opening.
How Much Do People Really Know about their Credit Scores?
• About 73 percent of consumers believe that their credit scores rank in as Good, but in reality only about 41 percent of consumers actually have Good credit scores.
• About the same amount of people – 42 percent – really have Poor credit scores
• Nearly 11 percent of consumers think they have Excellent credit scores, when the number is truly closer to 17 percent.
• Perhaps most disappointing is the fact that about 69 percent of Americans are completely off base as to the health of their credit rating, with about 1/3 having Poor scores and not even knowing about it.
• Even though 42 percent of consumers have Poor credit scores, only about 11 percent of people think that they do.
What does all of this have to do with Car Insurance Costs?
On average, car insurance premiums for people with Poor credit scores costs those people about twice as much money as what people with Excellent scores pay. Studies have shown that improving your credit score from Poor to Good can help you to save about 32 percent on auto insurance premium costs. If you can manage to improve your credit score from Good to Excellent, you can experience a drop of about 27 percent in your auto insurance premium costs.
How Insurance Companies come up with Premium Costs
Insurance companies price just about everything based upon assessed risk. As such, when these companies are underwriting auto insurance policies, they look at the credit score of the person getting the policy. Insurance companies, much like banks and other lenders, consider a lower score to be indicative of a higher risk. The bottom line is that insurance companies have determined that people with lower credit scores are more of a risk, and they adjust the prices they charge to these people accordingly.
What does this mean for you if you have a low credit score?
You can immediately begin to take action to lower your car insurance premiums by improving your credit score. There are some states where people can experience better results at getting lower insurance prices by improving their credit scores. These states include:
• Michigan
• New Jersey
• North Carolina
Of course, it pays to have a higher credit score, regardless of the state that you live in. And remember, the results of the study mentioned in this article represent averages across the country. That means that you may see a drastically lower insurance premium cost in New Jersey if you manage to improve your credit score, while you may wind up saving less if you live in a state like Illinois (this state has the lowest margin of savings for people with better credit scores.) Keeping all of this in mind, though, since a better credit score means at least some savings in premium costs, better interest rates on loans and a whole host of other benefits, it makes sense for everyone to become aware of what their credit score is and to take measures to improve it.

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