Credit scores and car insurance: the rules in each state

What a credit-based insurance score is

A credit-based insurance score is a number calculated from your credit report to predict how likely you are to file insurance claims. It is not the same as the score a lender uses, although both draw on the same report. In FICO's version, as described by the NAIC, payment history carries about 40% of the weight and outstanding debt about 30%, with the rest coming from the length of your credit history, new credit and your mix of accounts.

The NAIC says the score cannot use personal traits such as race, religion, gender, age or marital status, or your income or address. Those may still matter elsewhere in your price where state law allows, but not inside the score. Our guide to credit and car insurance explains the score itself in more detail. This post focuses on where and how states let insurers use it.

Credit-based insurance scores by state

State law decides whether an insurer may use credit in underwriting and pricing, and on what terms. The rules fall into three broad groups: outright bans, partial limits, and states that allow credit with general safeguards.

The strictest states

California, Hawaii and Massachusetts appear on both NAIC lists, the older one from 2019 and the current one. California's approach comes from its rating law, which ranks driving record, miles driven and years of experience above every other factor. Hawaii goes further than most states in a different way: its statute bars age, sex and length of driving experience from rating as well as credit, so young drivers there are not priced on age in the way they are elsewhere.

Michigan joined this group through its auto insurance reform. The state's Department of Insurance and Financial Services lists credit score among several non-driving factors, including ZIP code and occupation, that insurers can no longer use to set rates.

Maryland: credit for new policies only, with limits

Maryland shows that a "ban" can be partial. Insurers may use credit history to price a new policy, but they may not refuse to write, refuse to renew, cancel or raise your renewal premium because of it. Other Maryland rules:

• A credit-based surcharge cannot exceed 40%.
• Only credit information from the last 5 years can be used.
• Having no credit history, or the number of credit inquiries, cannot be held against you.
• Insurers that use credit must re-score you every 2 years, and you can ask for one recheck per policy period.
• Once your policy is in force, a worse score cannot raise your premium, but a better one may lower it at renewal.

Nevada, Oregon and Utah

The NAIC includes Nevada, Oregon and Utah on its list of states that ban credit-based scores for rates or for offering or renewing a policy. The NAIC does not break down what each ban covers, and as Maryland shows, these laws can be narrower than the word "ban" suggests. Your state insurance department can tell you exactly what insurers may and may not do with your credit.

Everywhere else

In the remaining states, insurers can use credit, and the NAIC says most states set guardrails. A common rule is that credit cannot be the only reason to deny, cancel or decline to renew a policy, or to raise its price. Some states also require insurers to tell you when credit information led to a worse outcome. Washington tried a temporary ban, but a court struck down the order before it took effect.

What the FTC found about credit and car insurance

Congress asked the Federal Trade Commission to study credit-based insurance scores, and its report in 2007 remains a key federal study of auto insurance and credit. Its key findings:

• The scores predict claims. Credit-based insurance scores are effective predictors of risk under auto policies. The FTC found they predict both how many claims people file and how much those claims cost in total.
• Scores differ by group. On average, African American and Hispanic consumers had lower scores, which likely raised what they paid relative to other groups.
• Most of the predictive power is not about race. The FTC estimated a proxy effect of 1.1% for African Americans and 0.7% for Hispanics, meaning the scores mostly measure risk rather than stand in for group membership.
• No easy alternative. The FTC could not build a scoring model that predicted risk as well while narrowing the differences between groups.

The study used policy data from insurers covering about 27% of the market. Critics argue that credit-based pricing charges people more for financial hardship rather than for how they drive, and that debate is why state rules keep changing.

How to check and dispute your credit report

1. Get your free reports. At AnnualCreditReport.com, the only site authorized for free reports, you can get your report once a week, free, from each of Equifax, Experian and TransUnion. Federal law also guarantees a free copy every 12 months.
2. Act on any adverse action notice. If an insurer charged you more or turned you down because of your credit report, you get a notice naming the bureau. You can ask for a free report within 60 days.
3. Check your insurance claims history too. Insurers also look at specialty reports such as the LexisNexis C.L.U.E. report, and you can request one free copy in any 12-month period. Our guide to claims history explains it.
4. Look for errors. Watch for accounts that are not yours, payments wrongly marked late, debts listed twice and old information that should have dropped off.
5. Dispute with the credit bureau. Write to each bureau that shows the error, explain what is wrong, circle it on a copy of your report and include copies of your evidence. You can also dispute online or by phone.
6. Dispute with the business that reported it. Send the company that supplied the wrong information a letter listing each error and your evidence.
7. Follow up. The bureau generally has 30 days to investigate and must send you the results in writing, plus a free copy of your report if anything changed.
8. Ask your insurer to re-score you. Once errors are fixed, ask whether the insurer will re-check your credit now or at renewal.

Keep in mind that accurate negative information can generally stay on your report for 7 years, and bankruptcy information for 10 years. A dispute fixes mistakes; it does not remove true records.

Alternatives if credit is raising your price

Credit is one factor among many, and you can work on the others while your credit recovers.

• Compare insurers. Companies weigh credit very differently, so the same driver can get very different quotes. See shopping at renewal.
• Ask about life events. The NAIC says insurers may reconsider premiums after an extraordinary life circumstance such as a catastrophic event, job loss or serious illness.
• Try telematics. Usage-based programs price you partly on how you actually drive. See telematics.
• Use every discount you qualify for. Our discounts guide lists the common ones.
• Rebuild steadily. The NAIC's tips are simple: pay on time, catch up on overdue accounts and keep card balances low.
• Know your rights. If you think an insurer broke your state's rules on credit, contact your state insurance department.

Our guide for drivers with bad credit covers more options, and the premium factors tool shows how credit compares with the other factors in your price.