New Study Shows Disproportionate Effect of Credit Scores on Auto Insurance Rates


Consumer Federation of America (CFA) released a new report July 31 detailing the impact of auto insurers’ use of consumer credit information on good drivers with only fair or poor credit scores. Across the country, consumers with poor credit annually pay hundreds or even thousands of dollars more for the basic auto insurance coverage mandated by state laws.

The full report is available here.

Auto insurance must, by law, be purchased by drivers in every state except New Hampshire. Therefore, policymakers and regulators have a special responsibility to ensure coverage is available and affordable and consumers do not experience unfair discrimination.

Since the 1990s, auto insurance companies have used consumer credit information as a factor in setting insurance premiums. The use of credit information in insurance pricing results in significant differences in the cost of auto insurance, even when comparing otherwise similar customers with clean driving records and no history of claims.

For consumers with fair and poor credit, insurance premiums are often unaffordable due to the heavy emphasis most insurers place on the reported credit history of their customers.

The study focused on the impact of the use of credit on the prices charged to Americans with safe driving histories.

While CFA maintains the results of its evaluation of the pricing data should lead to legislative and regulatory reform of the auto insurance industry, the central finding of the report lies with the numbers themselves.


  • American consumers with clean driving records and excellent credit pay an average annual auto insurance premium of $470 for state-mandated coverages. If those same consumers instead have fair credit, their average premium increases to $701, even if their driving records are perfect. Good drivers with poor credit face even higher premiums, averaging $1,012 for basic coverage across the country.
  • In percentage terms, consumers with fair credit pay premiums that average 49% higher than the premiums paid by consumers with excellent credit. Consumers with poor credit pay 115% more than consumers with excellent credit and 44% more than those with fair credit.
  • As credit impacts are generally uniform statewide but in-state territorial rates vary widely, often by ZIP code or census tract, drivers with fair and poor credit in higher priced urban communities face minimum limits insurance premiums that are often more than a thousand dollars higher than their neighbors with excellent credit.

Because credit history correlates to race and income, raising premiums on drivers with lower credit disproportionately harms low-income consumers and people of color.

In CFA’s conclusion, it argues state policymakers should prohibit insurers from using credit information in setting auto insurance rates as California, Hawaii and Massachusetts do currently. This ban, however, must be accompanied by additional protections that test for and minimize unfair discrimination to ensure the disparities driven by the use of credit are not maintained by the replacement of credit information with other underwriting and pricing tools that lead to similar results.

Source: CFA

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