Companies that most rely on credit scores to set car insurance rates

WalletHub study finds Farmers gives credit the most weight, Geico the least

You might not know it, but what you pay for car insurance may have a lot to do with your credit score.

Nearly all auto insurance companies attach some weight to a customer's credit standing -- some companies more than others and in some states more than others.

Personal finance site WalletHub recently crunched the numbers to see which states and which companies penalize low credit scores the most and benefit high ones.

To reach their conclusions, the study authors obtained quotes from five major insurance companies -- Farmers, Progressive, Geico, State Farm, and Allstate. They obtained quotes for two drivers identical in all respects except one. One had excellent credit, the other had no credit.

65% high car insurance rates

The study found that the driver with no credit paid, on average, 65% more for car insurance than people with excellent credit. The spread was widest in Pennsylvania, New Jersey, Colorado, Oregon, and Michigan.

The authors say they also found that Farmers appeared to be the most reliant on credit score information while Geico used it the least. But even Geico charged the no-credit customer 40% more than the excellent-credit customer.

State laws in California, Hawaii, and Massachusetts bar auto insurance companies from using credit scores to set insurance rates, so those states were excluded from the study.

The ranking

The insurance companies, in order of their reliance on credit information, are:

  1. Farmers
  2. Allstate
  3. State Farm
  4. Progressive
  5. Geico

In May, a NerdWallet study found that drivers in Michigan with poor credit paid the most for car insurance. The NerdWallet analysis found the rate disparity totaled $1,969 a year, or an extra $164 a month.

Second, third, and fourth on the list were Louisiana, Delaware, and Washington, DC, where drivers with poor credit all pay between $1,354 and $1,440 more per year than identical drivers with good credit. New Jersey drivers with poor credit pay an extra $1,204 per year in premiums.

If you happen to have poor credit, you could move to one of the three states where companies can't use credit scores to set insurance rates, or you could work to raise your credit score.

Personal finance experts say the easiest way to increase your credit score is to pay every bill on time, every month. If you have a high balance on your credit card, relative to your credit limit, work on paying down the balance, since credit utilization is also a major factor in establishing a credit score.

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