Car insurance rates are personalized for every individual based on a variety of factors that indicate how risky the driver is to insure. If you are wondering, “Does credit score affect car insurance,” the answer is yes. When you apply for coverage, your credit score is one of the common factors looked at before rates are determined in most states.
However, there are some auto insurance companies that don’t check credit in all situations when calculating your premium. In fact, some states don’t allow credit to be a variable at all. Additionally, there are certain types of insurance you may be able to get without undergoing a credit check first.
Why does your credit matter for car insurance?
The reason why credit matters when it comes to car insurance is because drivers with poor credit are considered higher risk to insure. The Insurance Information Institute (Triple-I) explains that having a low credit score is a good predictor of future insurance claims. Data shows that drivers who have bad credit are more likely to file claims, which costs insurance companies money.
To compensate for potential claims, the insurance company charges drivers with a lower credit standing a higher premium. Ultimately, charging drivers a higher rate for having bad credit is a way for the insurance company to lower its own financial risk and liability.
Because of this, in states where it is allowed, most car insurance companies consider your credit score when they provide a policy quote. During the quoting process, a licensed agent will typically ask you to provide your social security number. This is used to determine your credit-based insurance score, which is a rating factor used to calculate your rate.
What states do not allow credit checks for insurance?
Depending on where you live, insurance companies are not allowed to use your credit score to determine your premium. There are currently five states in which state laws result in insurance companies that don’t use credit scores when determining car insurance rates:
- Washington (temporarily)
In some other states, like Utah and Oregon, insurance companies cannot legally use your credit score as a basis for cancelling an auto insurance policy or refusing to renew an existing policy. However, insurance companies in these states can still use your credit score to determine your premium, which is why having a good credit score may give you an advantage in finding cheaper rates. Unless you live in one of the five states listed above, you can likely expect car insurance companies to look at your credit score when you apply for coverage.
What insurance companies do not check credit scores?
If you are searching for insurance companies that do not use credit scores, a few options are available. However, you may be better off looking for certain types of insurance, rather than specific companies, particularly if your situation requires specific financial protections. If finding a company that doesn’t not factor in credit is your top concern, here are two kinds of auto insurance that may not require a credit check in order for you to get approved.
If you go with a usage-based insurance company, your monthly premium is based on the distance you drive, rather than a fixed annual or semi-annual rate. This is also called pay-per-mile insurance, and it can be a cheaper option for infrequent drivers. Because there is no fixed premium, some usage-based insurance companies will not check your credit score.
Here are some of the usage-based insurance companies that may offer coverage without a check:
- Root Insurance
- Milewise® from Allstate
- SmartMiles® from Nationwide
When it comes to usage-based insurance, it may not be ideal for drivers who travel longer distances. Based on the pricing structure, it can actually be more expensive than traditional car insurance if you drive every day, such as on a regular commute to work or school.
If you’re concerned about getting costly car insurance quotes because of a poor credit score, another option to consider is telematics-based insurance. Although it would not circumvent a credit check in all scenarios, it may provide you more affordable rates if your driving habits are consistently safe. This type of car insurance uses a telematics device or mobile app to track your driving habits, like average speed and how fast you brake.
Rather than paying a flat monthly rate or a rate based on specific distance traveled, a telematics-based insurance premium is based on how safe (or unsafe) you drive. Even if you have a poor credit score, you could potentially make up for it by demonstrating safe skills behind the wheel.
Here are some of the telematics-based insurance programs that may not require a credit check:
- Progressive Snapshot
- State Farm Drive Safe and Save
- Farmers Signal
- Geico DriveEasy
- Allstate Drivewise
Frequently asked questions
What is the best car insurance company?
The best car insurance company is different for every driver. For instance, Amica might be the best option for you, but for your military neighbor, USAA might be a better choice. To find the best provider for you, spend some time comparing providers using your personal criteria for top priorities, then get multiple quotes to make sure you are getting the best price for your situation.
How much does car insurance cost?
In the United States, the average cost of car insurance is $1,674 per year for a full coverage policy, according to Bankrate’s 2021 study of quotes from Quadrant Information Services. However, every driver pays a different rate based on their unique circumstances.
How can I get car insurance with bad credit?
Having bad credit alone will usually not affect your ability to get car insurance, but you might pay a higher premium. To get cheaper coverage, you may benefit from comparing quotes from companies that specialize in auto insurance for drivers with bad credit.