Pedro Montenegro was puzzled by the car insurance quote he received when he moved to Washington, D.C., from California.
The only ticket he ever got was for a broken taillight that he later fixed. But despite a near spotless driving record, Montenegro was facing a $300 monthly premium, much more than some of his friends who he believed drove more recklessly.
He eventually realized the high quote was likely due to his low credit score.
“It’s both silly and unfair,” says Montenegro, 29, whose credit score hovered in the low 500’s because of student loans and irresponsible spending when he was younger. “I definitely don’t think something like a credit score should factor in at all, or as much, as your driving record,” he says, adding, “the credit score only says a small part about you.”
Bad credit is not like risky driving
A low credit score can increase what drivers pay for car insurance by hundreds of dollars, consumer advocates say. Yet 66% of Americans don’t know their credit history is a factor when most car insurers are deciding how much to charge them, according to a study by the insurance company Root.
“There are lots of reasons that people have bad credit that have nothing to do with their risk-taking behind the wheel, and yet it is one of the dominant features in pricing,” says Douglas Heller, insurance expert for the Consumer Federation of America. “Because laws in virtually every state require people to buy this product, there’s a special obligation to make sure the pricing is fair .’’
Premiums can take a toll financially with 35% of those surveyed saying they couldn’t pay for essentials because their payments were so high. And the pricing practice poses a particular hardship for African Americans, Latinos and Indigenous Americans who are more likely to have poor credit histories often due to systemic biases and challenges, consumer advocates say.
“We have an auto insurance market that is deeply discriminating in its outcomes,” says Heller. “Even if you have this perfect driving record, you’re going to be paying extremely higher rates and that tends to mean Black and Latino and Native Americans are paying more.”
A mandatory cost
Car insurance is required in every state except New Hampshire and Virginia. And credit history is typically one of the factors car insurers look at to calculate how much a customer will pay.
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SOURCE: USA TODAY, Charisse Jones