How Much Can My Credit Affect My Nevada Auto Insurance Prices?
Whether Nevada consumers like it or not, their credit history often plays a role in how much they end up paying for car insurance. And according to a sample rate comparison published in 2010 by state regulators, credit status can have a significant effect on premiums.
In the rate comparison, annual premiums from the same insurer for an example coverage profile fluctuated by as much as $2,242—or 216 percent—just because of credit status. That means a Nevada driver with the worst credit history could
end up paying three times as much for the same coverage as a person with the best possible credit history.
Choice of Provider Plays a Major Role
Largely, the size of the impact is determined by how much weight a particular insurer gives to this factor. Insurers generally do not use credit scores employed by lenders but rather use their own blend of credit history factors to determine how much risk a motorist poses and, consequently, how cheap auto insurance will be for him or her.
Each insurer’s score is unique, as is the weight each assigns to it. Some insurers don’t use them at all. Of the 25 insurers that participated in the rate-comparison provided by regulators, five of them did not adjust premiums based on credit. Shopping around will help consumers minimize the effects of bad a credit history and maximize the effects of a good one.
(The sample premiums that will be discussed here are for a 30-year-old divorced female who lives in Reno, has a clean driving record and drives about 4,500 miles annually. The auto is a 2010 Honda CR-V with 15/30/10 liability, $1,000 med-pay, 15/30 uninsured motorist coverage and comprehensive and collision.)
Going from Best to Worst
The Nevada car insurance rate comparison only lists three credit rankings: best, neutral and worst.
Rates for the driver profile when she has the best possible credit score range between $536 and $2,712 a year, with the average coming in at $1,188.
But when credit status is changed to the worst possible, rates skyrocket. Her rates when credit status is ranked as worst possible range from $992 to a whopping $4,400 a year. The average annual rate when she has the worst possible credit score is $2,034.
For insurers who use credit scores, going from the best possible score to the worst possible score pushed up premiums by at least 12 percent and by at most 216 percent.
The average increase for going from best to worst was 83 percent.
Going from Best to Neutral
Drivers with average or neutral scores still pay substantially more for coverage than those with the best scores.
For insurers who use credit scores, going from the best possible to a neutral or average pushed up premiums by at least 5 percent and by at most 76 percent.
The average premium increase for going from best to neutral was 29 percent, or $288 a year.
Why Do Insurers Use Credit Information?
Insurers across the country factor in a prospective policyholder’s credit when determining how much to charge for a policy because credit appears to have a significant correlation with the frequency at which policyholders will file claims as well as with the size of those claims.
According to the Nevada Department of Insurance, the industry “asserts that credit-based insurance scores measure an insured’s financial responsibility, which is also an indicator of responsibility in other areas of the insured’s life, such as driving and home maintenance.” Numerous reports from state regulators and even the Federal Trade Commission have corroborated the industry’s claims that credit status and claims trends correlate, though none have provided a thorough explanation as to why this is.