If You're a Driver in These 7 States, Your Credit Score Can't Affect Your Auto Insurance Rates
In some states, it's illegal for insurers to use a driver's credit score to deny or cancel auto insurance coverage or set insurance rates. Find out where.
Image source: Upsplash/The Motley Fool
The rates drivers pay for auto insurance coverage vary. Factors like age, driving record, location, and vehicle type can influence the insurance rates. Another factor influencing auto insurance premium rates is an individual driver's credit score.
But, in a few states, a driver's credit score can't impact their car insurance rates. Find out which U.S. states don't allow insurers to use driver's credit scores to determine insurance rates.
Insurers in many states use credit-based insurance scores
Maintaining a good credit score is wise. Your credit history and credit score can impact the rates available when applying for a loan, like a home mortgage. There are also other reasons it pays to have a good credit score. Some drivers may qualify for better auto insurance rates.
In most U.S. states, insurers can use credit-based insurance scores to determine drivers' rates for auto insurance coverage. However, this isn't a legal practice everywhere. Several states have legislation disallowing this. We'll explain which states disapprove of this practice:
1. California
Car insurance companies aren't allowed to use credit scores or a driver's credit history for underwriting or rating proposes for auto insurance coverage.
2. Hawaii
Hawaii's state laws prohibit insurers from using credit ratings to determine auto insurance policy prices. Insurance companies will consider other factors beyond credit for drivers in this state.
3. Maryland
In Maryland, car insurance companies can't refuse to underwrite, cancel, refuse to renew, or increase the renewal premium based in whole or in part on the credit history of the insured or applicant. However, insurers can use a driver's credit history when applying for new coverage to determine the rate for auto insurance coverage.
4. Massachusetts
Insurers in Michigan can't use credit information or credit-based scores to determine rates when setting auto insurance rates, renewing an auto insurance policy, or underwriting a new policy.
5. Michigan
Insurers in Michigan can't use credit information or credit insurance scores as the sole basis to deny, cancel, or not renew a personal auto insurance policy. Insurers can also not use a driver's credit score to determine their auto insurance policy rate.
6. Oregon
In Oregon, insurers can't cancel auto insurance coverage or refuse to renew a policy because of a driver's credit. However, insurers can consider an applicant's credit when deciding whether to initially offer an auto insurance policy to drivers, but it can't be the only deciding factor.
7. Utah
Car insurance companies in Utah can consider a driver's credit for initial underwriting, but credit score can't be the only determining factor when deciding whether to offer a policy.
Once a driver is a customer for 60 days, the insurance company can't use credit information to cancel or refuse to renew a policy or decline coverage if the driver requests to add a new vehicle to their policy.
What about drivers who don't live in these states?
For drivers outside the states mentioned above, insurers can use credit-based insurance scores to determine auto insurance rates. That means drivers with lower credit scores could pay more for their insurance policies, which could impact their financial situation.
However, it's worthwhile for drivers to review their state laws before applying for insurance coverage to know what to expect. Some drivers may be able to save money by getting a policy from one of the cheapest car insurance companies.
Whether you drive or not, maintaining good credit is smart. Your credit can impact many areas of your life. There are ways to increase your credit score if you have a low or limited credit score. Paying down outstanding debt and paying every bill on time are some actions that could help you improve your score. For additional financial tips, check out our personal finance resources.
Our best car insurance companies for 2024
Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we've researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
