Car Insurance and Credit Scores

Credit scores have a substantial impact on car insurance rates.

Here is an interesting segment from CBS This Morning on the secrets of the car insurance industry. What was found, based on a Consumer Reports investigation published in an article entitled “The Truth About Car Insurance,” is that car insurance companies put great emphasis on credit scores. Car insurance companies argue, in turn, that credit scores are good predictors of risk. Importantly, car insurance companies believe credit scores correlate with the likelihood of filing a claim, not necessarily of having an accident.

This study, conducted over two years, involved two billion quotes from 700 different car insurance companies throughout the U.S. This video is enlightening on how these companies operate to determine risk. Notably, Margot Gilman, who was interviewed in the video below, argues that someone with a DWI offense and a good credit score should not have a lower rate than someone with a clean driving record and a poor credit score, as is often the case based on her research. She also argues that more transparency is needed in the industry regarding how risk is determined. She also found that some of the discounts often touted by car insurance companies to win over customers are negligible based on a crunching of the numbers.

This video is interesting as it debunks common misconceptions about car insurance. We have pointed out previously that credit scores affect car insurance rates, but this study shows just how most people, including some experts, underestimate this effect.