In every state but New Hampshire, it is mandatory for drivers to obtain car insurance. While many believe that an individual's driving record is the main determiner of rates, most are in the dark about the connection between credit scores and car insurance, according to a report by the United States Government Accountability Office on credit reporting literacy.
In light of this report, personal finance site WalletHub set out to illuminate the issue in a recent study of their own. WalletHub evaluated the importance of credit data to insurance underwriting, and obtained quotes for hypothetical consumers who were identical except for different credit scores.
The results showed that the average difference between an auto insurance applicant with excellent credit and one with no credit history is 65 percent. This can also fluctuate greatly depending on the area where the applicant currently resides. According to the report, the District of Columbia had the most extensive fluctuation, with 136 percent reported. Vermont had the least difference, with a fluctuation of only 18 percent.
According to an article on PropertyCasualty360, a national underwriter website, which analyzed the reports findings, insurance companies also vary widely in transparency with the use of credit scores. The source determined an insurer's transparency by studying how difficult it is for consumers to confirm the organization is accessing their credit information and what data is being accessed. Progressive scored highest in this regard, with a perfect score of 10, and Liberty Mutual received the lowest score, a 4.5.
For both insurers and lenders, having access to modern credit risk management software can aid the decision process, and result in a fair appraisal of a consumers creditworthiness. Credit scoring solutions are fully customizable according to market requirements, and can protect organizations in a wide range of industries from unnecessary risk.