Credit Checks Increase Premiums for Low-Income Groups—That Doesn’t Mean They’re Riskier Drivers

Jane Lu
· 3 min read
There are several factors that can impact your
car insurance rates
including your age, driving record, and location.
In some states, car insurance companies can even use your
credit score
to determine your premiums. Even a driver with a clean driving record can face higher premiums if they have poor credit.
looked at over 1 million points of driver data from July 2020 to July 2021. Here’s what we found about how different income groups are impacted in states with credit checks.
Low-income groups are at a disadvantage when credit checks are used for car insurance premiums.

Drivers in credit-check allowed states see higher car insurance premiums

Jerry defined low income as having a household income of $53,413 or less per year. Middle income has a household income of $53,414 to $106,827 per year, and upper-middle income was $106,828 to $373,894 per year.
With the exception of California, Maryland, Michigan, Massachusetts, Oregon, and Utah, all other states allowed credit checks to determine insurance premiums.
Jerry found that all income brackets are negatively impacted by credit checks and pay at least 10% more compared to states that don’t allow credit checks. Low-income individuals are especially hard-hit by this, and credit checks can add up to $30 a month to their premiums.
In states with no credit checks, the proportion of drivers with violations or other claims are consistently higher. There’s an especially notable difference between the percentage of violations for low-income drivers in states with and without checks.
Does this mean that drivers in no credit check states are riskier drivers? This might not be the full story.
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Traffic violations among different income groups

In the upper-middle-income bracket, there’s less than a 1% difference between the percentage of drivers with violations in credit check versus no credit check states.
In the middle-income bracket, there’s approximately a 2.6% difference. However, in the low-income bracket, there’s a substantial difference of nearly 5%.
BuzzFeed News
reported the findings from the Lawyers' Committee for Civil Rights of the San Francisco Bay Area. The group found that "Black and Latino drivers were disproportionately arrested for driving with a suspended license."
The group provides legal aid in civil cases, and their report shows that "poor communities face higher rates of license suspension related to failing to appear or pay fines." This penalizes the residents for their poverty.
There have been no comprehensive studies statewide about police stops. But, several studies from across California show that Black and Latino drivers are pulled over more than White drivers.
A 2014 study found that in Fresno, Hispanic drivers were 4.3X more likely to be pulled over with the only reason being "probable cause."

Do increased car violations mean riskier drivers?

Lower-income groups might have a higher percentage of violations in credit check states because they’re more likely to be pulled over and receive traffic citations, and not because they’re riskier drivers.
The discrepancy between the percentage of violations for low-income drivers compared to higher-income drivers likely doesn’t boil down to any single factor. It can represent flaws in the law enforcement system including racial inequities.
Some states are working to tackle the issue of racial disparity in criminal justice systems. The movement to end credit checks is one of these initiatives.
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