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Can Poor Credit Drive You Crazy?

If your credit score is low, your car insurance premiums are probably sky-high.

Cars driving

If you have bad credit, don’t drive in Arizona.

The home of the Grand Canyon is also the state with the greatest chasm for car insurance premiums – drivers with bad credit pay 226 percent more than drivers with excellent credit.

Arizona topped the list of worst states for bad-credit drivers in a new study from the website InsuranceQuotes, which concluded, “Drivers with poor credit often pay double, or even triple, depending on where they live.”

These days, given the glut of television commercials about free credit scores, many Americans realize their credit score affects everything from getting a decent credit card to getting any kind of mortgage at all. But InsuranceQuotes’ senior insurance analyst Laura Adams says nearly half of us don’t know it impacts car insurance rates, too.

“What’s really concerning is that 42 percent of Americans aren’t aware that there’s a relationship between credit and insurance rates,” Adams says. “Over 95 percent of U.S. insurance companies use credit to set auto premiums in every state except California, Hawaii and Massachusetts, where the practice is not allowed.”

Yet when Adams and her staff studied the states where that practice is allowed, they found some shocking results – and not just in Arizona.

Here’s what they did: They created a “hypothetical 45-year-old, married female driver with a bachelor’s degree and no prior claims or lapses in coverage.” Then they searched for car insurance state by state, changing only one variable – her credit score.

The overall conclusion…

The study found that if you have fair credit, you’ll pay 28 percent more for car insurance than a driver with excellent credit (up from 24 percent in 2013). And if you have poor credit, your premium doubles, increasing your rate by 104 percent (up from 91 percent in 2013).

Those are national averages, which means driving is cheaper – and pricier – depending on which state you live in. Besides Arizona’s whopping 226 percent difference, the next four states still top 200 percent:

  • New Jersey — 216 percent
  • Nevada — 213 percent
  • Nebraska — 206 percent
  • Oklahoma — 201 percent

Then again, that means some states don’t punish drivers with bad credit nearly as much. Here are the five most forgiving (excluding the aforementioned Hawaii, Massachusetts, and California):

  • North Carolina — 51 percent
  • Virginia — 75 percent
  • Wyoming — 76 percent
  • New York — 77 percent
  • Connecticut — 86 percent

Of course, even these “better” states still punish bad-credit drivers pretty hard. But there’s good news, Adams says.

“Insurance companies set premiums based on the information in your credit history and typically use it only for an initial quote,” she points out. “So consumers who have improved their credit over time should request a new auto insurance rate in order to save money.”

So how do you raise your credit score? Read Consolidated Credit’s Credit Score Guide and learn how.

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