Like loans and credit card approvals, a good credit score also influences the car insurance premium lenders quote you. Most lenders use your credit report to determine your auto insurance rates. The higher your score, the lower the price you pay for insurance.
However, your personal credit score is not the same as your insurance credit score. To calculate the insurance premium you could be charged, insurance companies use your credit score and also thoroughly examine your credit reports. They then run this information through their own algorithm that generates an “insurance score.” Through this, the risk you pose as an insurer is decided. That is, how likely you are to make an insurance claim is based on data in your credit report. The factors car insurance lenders mainly look at are payment history, types of active credit, and length of credit history. Income, gender, address, race, and ethnicity are not considered in the score.
Using credit scores to determine car insurance rates is considered unfair by many and some states have banned the use of credit-based insurance rates. The arguments are that your driving skills or how likely you are to file an insurance claim have nothing to do with your credit history. The practice of calculating a credit-based car rate has been banned in Massachusetts, Michigan, Hawaii, and California. Maryland, Utah, and Oregon restrict insurance companies from denying insurance to individuals solely based on their credit scores.
Washington issued a temporary three-year ban meant to take effect in 2022, however, the temporary ban is on hold because of an ongoing lawsuit.
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