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How does credit score affect car insurance rates?

SALT LAKE CITY — It’s something we all must purchase as drivers: car insurance.

What you’re shelling out for that insurance can be dependent on what kind of vehicle you have, your age, where you live. But did you know your credit score can affect how much you pay?

While using credit scores to determine insurance rates is illegal in a few states, in Utah it’s fair game.

By Harvard Health Watch’s numbers, we’ll spend nearly 38,000 hours driving during our lifetime. But the amount you’re paying for that insurance isn’t solely based on your driving record.

“The problem is, we’re being charged based on things that have nothing to do with how we drive, but instead have to do with our personal financial circumstances,” says Doug Heller, director of insurance for the Consumer Federation of America. “When the government is requiring us to buy a certain product, we should be free to buy that product at a fair price based on how much risk we bring to the road.”

It’s the latest in the uncovering of what some states are calling discriminatory pricing of auto insurance.

States like Washington and Kentucky are taking a closer look at state insurance department practices. Heller explains how Utah is no stranger to using credit scores to upcharge drivers.

“In Utah, they are all allowed to use this credit score and they use it to varying degrees. Some might charge an 80% penalty for somebody with low credit. Somebody might charge 130% penalty. Either way you’re paying dramatically more,” he said.

So how much more could you be paying based on your credit score? We looked at the Consumer Federation’s numbers for Utah.

In Utah, just to buy the bare bones auto insurance policy that’s required by state law, you end up paying about $200 more a year if your credit is fair instead of being excellent.

If you have poor credit, you end up paying about $600 more a year for the same basic policy. That’s not including comprehensive or collision coverage.

“Our credit worthiness is like a sticker that tells us how much more we’re going to buy from them because people with higher credit tend to have more wealth, which means they’re going to be more likely to buy a home insurance policy and a life insurance policy and maybe they’ll sign up with their bank account that the insurance companies have and they’re affiliates,” says Heller. “That’s what the insurance companies are interested in.”

Heller says without the action of lawmakers, there’s not much that can be done to change these practices.

“It’s been a very powerful lobbying influence that has kept this practice alive for a fairly long time,” says Heller.

What can you do to make sure you’re getting the best rate for your car insurance? The Consumer Federation says to shop around every three years or so because you’re bound to find something cheaper.

While many people think they’re getting a loyalty discount by staying with their long-time insurance company, Heller says that discount doesn’t do you any good if it isn’t as much savings as you would get if you went to another company.

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