If you have poor credit, the chances are good that you are paying more for car insurance. In many states, insurers use what is known as a “credit-based insurance score” in determining how much to charge policyholders for coverage.
However, in a handful of states, this practice is illegal. The states that ban the use of credit scores in determining auto insurance rates are:
- New Jersey
New Jersey is the most recent addition to the list. Late in January, it passed a law that prohibits insurers from using a driver’s credit score, occupation and education when establishing auto insurance rates. Chuck Bell, programs director for advocacy for Consumer Reports, said:
“Pricing auto insurance based on non-driving factors like credit scores, education and occupation is particularly troublesome since it magnifies the economic impacts of systemic racism. This bill will help ensure that auto insurance is priced fairly in New Jersey so that drivers will be able to afford the coverage they need.”
Critics of using credit information to determine rates say it is fundamentally unfair, since it raises rates based on factors that have nothing to do with a policyholder’s driving record.
Those who defend the practice say there is ample evidence showing that people with bad credit are more likely to file claims, including a 2007 report by the Federal Trade Commission.
New Jersey is unlikely to be the last state to eliminate credit scores from consideration when setting insurance rates.
In late 2020, Washington’s state insurance commissioner, Mike Kreidler, announced plans to propose legislation that would not allow insurance companies to use credit scores in determining how much people pay for insurance.
In addition, some states — including California, Massachusetts, New York and Michigan — already prohibit the use of other factors like education and job level in car insurance pricing.
Finding the best auto insurance rates
Regardless of your credit score, you can almost always find better rates simply by shopping around for auto insurance coverage. The criteria used to set auto rates varies from insurer to insurer, so comparison shopping can help you find the company that best fits your particular insurance situation.
If you prefer, you can shop around by getting quotes from several providers and comparing. Or, you can use a service like The Zebra or Gabi. Such services gather quotes for you so you can pick the best rate.
Money Talks News founder Stacy Johnson tried Gabi and found it worth his time. He wrote in “How I Found $546 in Car Insurance Savings in Under 10 Minutes“:
“I’m currently insuring two cars with USAA at a combined cost of about $2,400. Gabi said Progressive could give me the same coverage for 22% less, saving me $546. All I had to do is give Gabi the go-ahead and my driver’s license number. Then, Gabi would confirm the rate and even do the switching for me.”
To learn more about shopping for car insurance, read “Beware These 7 Common Car Insurance Shopping Mistakes.”