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By Brad Tuttle
July 30, 2015
Richard Klotz—Getty Images/iStockphoto

Your credit score is a number that indicates how likely you are to pay off debts, from credit card bills to mortgages and beyond. The number is based on one’s credit history, and understandably, these scores are used regularly by banks and landlords as a way of determining whether it’s a good idea to give an individual a loan, or an apartment lease.

Increasingly, and somewhat puzzlingly, credit scores are also being consulted by employers to help them figure out who to hire, and by insurers that set premium rates based partially on the scores. Auto insurance companies began using the scores in the mid-1990s, and it’s now commonplace for them to help determine rates. Only California, Hawaii, and Massachusetts have laws banning the use of credit scores as a factor for establishing car insurance rates.

What in the world does one’s credit history have to do with the likelihood of, say, getting into a car accident? The web insurer esurance admits on its site that using credit scores to determine auto insurance is “controversial.” But it claims that doing so is legitimate nonetheless:

While insurers acknowledge that credit scores play a role in whether premium rates are high, low, or somewhere in between, it’s largely impossible to tell how big the impact is. That’s why Consumer Reports decided it was worthwhile to launch an investigation and try to get to the bottom of this. “Over the past 15 years, insurers have made pricing considerably more complicated and confusing,” the report states. Because insurers aren’t exactly forthcoming in explaining how they come up with rates (shocking!), Consumer Reports researchers analyzed more than two billion auto insurance price quotes from 700 companies for hypothetical drivers all over the country.

The results, published in the September 2015 issue, are particularly alarming for drivers with poor credit scores—and even for those with scores that are good rather than excellent. “Our single drivers who had merely good scores paid $68 to $526 more per year, on average, than similar drivers with the best scores, depending on the state they called home,” the report states. Nationwide, drivers with good scores paid an average of $214 more annually than their neighbors with the best credit scores.

The impact of one’s driving and credit history on insurance varies widely from state to state. In Florida, for instance, a single adult driver with a clean record pays $3,826 annually for auto insruance, on average, if he has poor credit, or $2,417 more than a driver with a clean record with excellent credit ($1,409). Meanwhile, a driver with merely good credit would pay $1,721 annually, or $312 more than his counterpart with a top credit score.

Astonishingly, at times a poor credit score seems to have a larger influence on auto insurance rates than a drunk-driving conviction—which, one would think, is surely a strong indicator of the likelihood of getting into car accidents. In Florida, a driver with excellent credit and a DUI would pay an average of $2,274 per year for auto insurance, or $1,552 more than the driver with a clean record but a bad credit score.

Apparently, in the eyes of some insurers, the failure to pay off credit card bills is a worse offense than drunk driving.

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The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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