Insurance Rates, Claims, and Your Credit Score

We all know that a high credit score leads to a better rate on a mortgage and a lower interest rate on an auto lease, but what about its effect on the cost of auto insurance premiums?

The FTC released results from a study which drew interesting, yet troubling correlations between credit scores and automobile insurance premiums, namely that poor credit scores tend to go hand in hand with increased claim activity.

The study has drawn criticism because of the correlation between low-income minority groups and increased claim filings, citing borrowers with lower credit scores were more likely to file a claim.

So these consumers with low credit scores who were said to be more likely to file a claim would clearly be stuck paying higher car insurance premiums as a result.

The problematic aspect of the study is that there seemed to be a strong correlation between minority groups and high-cost premiums, begging the question of whether race has an effect on what we pay for car insurance.

But the FTC felt the study simply reiterated what they knew all along, that lower credit scores led to increased claim filings and vice versa. Nothing to do with race, despite the staggering results.

So it looks like credit scoring will continue to determine what you pay for auto insurance (at least in certain states), and be assured that the lower your score, the higher your premium, regardless of race.

Although industry watchdogs may soon step in to further investigate why minority groups are winding up with lower credit scores than their counterparts.

All the more reason to strive for an excellent credit score people!

Related: How to raise your credit score.