4 States That Don’t Allow Credit Scores in Insurance

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States that dont allow credit score in insurance: man driving a car

Depending on what state you live in, the cost of your auto insurance policy may be determined in part by your credit score. Auto insurance companies use a process called underwriting that helps them decide how much to charge people for their insurance premiums based on predicting the risk of loss.

Despite this being a common practice in many states, some have banned using credit scores as a factor in setting insurance rates.

Let’s go over which states don’t allow credit checks and what other factors impact rates, like payment history and accidents. When you know what insurers are looking at to set your premium, you can make more informed decisions about your insurance coverage options.

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States That Don’t Allow Credit Scores in Insurance Pricing

The states that don’t allow credit scores in the underwriting process for car insurance are: 

Each of these states has banned credit scoring in evaluating auto insurance rates for their own reasons.

For instance, California has established regulations through Proposition 103 to bar discriminatory practices against policyholders based on their credit history. 

“Statistics could show that blondes file more claims than brunettes, but that does not mean insurance companies can charge a higher premium to people with blonde hair,” said the Foundation for Taxpayer and Consumer Rights senior consumer advocate Douglas Heller. “The same goes for credit history, which may explain a lot about a person’s income and the financial institutions available in their community, but has nothing to do with whether or not they are … low-risk.”

Hawaii, on the other hand, prioritizes the need for affordability and fairness in insurance pricing. Massachusetts and Michigan have similar approaches to guarantee insurance rates directly relate to claims history and driving behavior. All of these states have barred credit scores in determining rates for auto policyholders to support more equitable insurance practices for their residents.

Why the Use Of Credit Scores in Auto Insurance is Controversial

States that dont allow credit score in insurance: person calculating her bills

The insurance industry‘s use of credit scores in deciding auto insurance rates has stirred up debate amongst insurers and states. A crucial concern is the possibility of errors and omissions in credit reports negatively impacting insurance rates. Imprecise information can cause auto insurance premiums to increase, which unjustly affects policyholders.

In addition, using a credit-based insurance score to set rates can disproportionately affect low-income consumers and minorities who may have poor or no credit. It has been shown that timely payment of credit cards and other financial transactions that are included on a credit report are not reliable predictors of whether a person is a high-risk driver.

Using credit information in this way only serves to create biased financial burdens for those who already experience discrimination. Also, some people may not have established credit or have a limited credit history because they choose not to use it. Excluding these consumers from affordable insurance rates based on their credit score (or lack thereof) is seen as unfair and unreasonable by many.

How to Get Budget-Friendly Auto Insurance Without Good Credit

Old woman using a laptop

If you don’t have a good credit score and you live where state law allows insurers to use credit scores to determine auto insurance rates, there are options that can help reduce your insurance premiums

Even in the states that use credit history, insurance companies consider a host of factors to set your rate such as age, gender, address, avoiding late payments, and maintaining an accident-free driving record. By demonstrating responsible financial and driving behavior, you can get lower auto insurance rates wherever you live.

Another option is signing up with telematics and usage-based car insurance programs. These programs use mobile apps or telematic devices to record driving habits, speed, and braking patterns. This way insurance companies can offer personalized rates based on your individual risk profile rather than your credit rating.

It’s essential to get multiple quotes from many car insurance companies and check your rates based on your location, demographics, vehicle type, and usage. This can help you find the most competitive premium rate for your insurance policy

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Why Rates Are Often Lower in States That Don’t Allow Credit Scores

When comparing auto insurance rates in states that use credit scores vs. those that don’t, it’s clear that states that don’t use credit scores almost all have lower premiums:

State Uses Credit Scores to Set Rate? Liability Only Full Coverage
Hawaii No $61 $160
California No $95 $282
Massachusetts No $97 $264
Utah Yes, with limits $135 $296
Rhode Island Yes $168 $366
Kentucky Yes $209 $430
New Jersey Yes $238 $469
Michigan No $312 $579
Louisiana Yes $322 $783
New York Yes $337 $667

One of the main reasons the price of car insurance is often lower in states that don’t allow credit scores is because the rate is based on driving history and other factors that are directly related to predicting future risk. 

In states that use credit scores to set auto insurance premiums, drivers are paying more to protect themselves and others from accidents that haven’t occurred and may not ever, according to Consumer Reports

This practice also doesn’t penalize those who are unsafe drivers with higher rates strictly because of collisions. Which in turn doesn’t help to prevent future mishaps by those who are careless. This is concerning because the primary cause of death for the majority of the U.S. population is road traffic crashes as reported by the Centers for Disease Control and Prevention (CDC).

The Effect of Poor Credit on Car Insurance Rates 

You’ll tend to have to pay higher insurance rates if you have a bad credit score and you live anywhere but in the four states discussed. If you have a good credit score, you can expect to pay a lower rate.

Here are the average monthly auto insurance rates by credit score, according to data collected by Quadrant Information Services:

Credit Bracket Liability Only Full Coverage
Excellent Credit $119 $262
Good Credit $143 $315
Fair Credit $174 $381
Poor Credit $277 $589

When you’re looking for an auto insurance policy that aligns with your budget and coverage needs, check your credit score if you live in a state that factors it in. Shopping around and comparing car insurance quotes from different companies is the most effective way to reduce the impact of poor credit on your car insurance rate

It Pays to Stay Informed About the Use of Credit Scores

Person driving a car

Understanding why some states don’t use credit scores in determining auto insurance rates can help you secure more competitive insurance rates. California, Hawaii, Massachusetts, and Michigan have addressed potential discrimination and fairness by prohibiting using credit scores. But for the other 46 states, you still need to keep an eye out.

Luckily, there are options for people with bad or no credit. Maintain a good driving record, try a telematics program, and compare rates from multiple insurers to ensure you get the cheapest car insurance.

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Methodology: Some of the data referenced in this article has been gathered in collaboration with Quadrant Information Services. We analyzed more than 2.5 million rows of carrier-reported data to calculate the average rates referenced above. All rates are based on an insurance profile of a single-vehicle policy for a driver that owns a Honda Accord. For more information on how we calculate rates, please reference our data methodology.

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