Consumer Alert: Your auto insurer charges you more if you have poor credit, here’s what you can do about it

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ROCHESTER, N.Y. (WHEC) — I have a question for you. Do you know you know why your auto insurer charges you the rate you’re paying? Auto insurers look at four factors when deciding how much to charge you:

  • What you drive
  • How you drive
  • Where you are
  • Who you are.

Yes, your insurer considers who you are when deciding what to charge you. For example, rates for women are higher than they are for men, and people with a high school education pay more than college graduates. And then there’s your credit score. I looked up the numbers for New York on a site called, The Zebra, a company that researches insurance rates.

And I was floored to find out how much more you pay for bad credit. New Yorkers with exceptional credit pay about $1,500 annually. If your credit is very good, you shell out almost $1,800. Those with good credit, that’s a score of 670 to 739, pay just over $2,100. If you have fair credit, you’re paying more than $2,700. And if you have poor credit, you’re paying almost $3,800 a year for the same insurance. So researchers found that people with poor credit are charged 150% more than those with exceptional credit.

“Even if you improve your credit score by just one tier you’re going to see savings up to a thousand dollars which is a 28% saving,” Danielle Marchell, public relations manager for The Zebra said.

But is tying the price you pay to your gender, credit score, and zip code fair? Many consumer advocates argue it’s not and say the practice disproportionately affects minorities. And experts and economists argue the practice of basing pricing on zip codes is especially discriminatory.

A study by the Consumer Federation found that premiums for residents in zip codes with predominantly Black residents were 60 percent higher than in white neighborhoods.

Congress is considering legislation that bans the practice. Five states have taken the lead. California, Massachusetts, Hawaii, Michigan, and most recently Washington have all made basing insurance premiums on credit scores illegal. Washington State’s Insurance commissioner banned the practice in March and while New York legislators have debated the fairness, or lack thereof, of charging those with low credit scores more, no action has been taken. So it pays to improve your credit score.

Here’s Deanna’s Do List for improving that score:

  • Ask for a higher credit limit. It seems counterintuitive, but when you have more credit available to you compared to how much you owe, you improve your credit utilization rate which improves your score.
  • Pay your bills on time. If you’re late, call the credit card company and ask them to waive it. Often they will if you’re not doing that often.
  • Become an authorized user. If you have a thin credit file, asking to be an authorized user on your family members’ card can help your score.
  • Use a secured credit card. This is especially useful if you have a poor credit history. Secured cards are backed by your cash deposit. You then improve your score by paying that card bill on time.
  • Keep your credit card open after paying it off. Having that line of credit helps your credit utilization rate.

It pays to compare insurance rates as well. US News has helpful information on how to compare rates.

The following sites are also helpful when comparing the rates of different companies: