Auto insurance rates are personalized for each individual based on a variety of factors that indicate how risky the driver is to insure. If you are wondering, “Does credit score affect auto insurance?” “, The answer is yes. When applying for coverage, your credit score is one of the common factors considered before rates are determined in most states.
However, some auto insurance companies do not check credit in all situations when calculating your premium. In fact, some states do not allow credit to be a variable at all. Plus, there are certain types of insurance that you can get without having to go through a credit check first.
Why is your credit important for auto insurance?
The reason credit is important in auto insurance is that drivers with low credit are considered to be of 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 with bad credit are more likely to file claims, which costs insurance companies money.
To offset potential claims, the insurance company charges drivers with lower credit a higher premium. Ultimately, charging drivers a higher rate for having bad credit is one way for the insurance company to reduce its own financial risk and liability.
For this reason, in states where it is permitted, most auto insurance companies take your credit score into account when providing a policy quote. During the quote process, a licensed agent will usually ask you to provide your social security number. This is used to determine your insurance score based on credit, which is a scoring factor used to calculate your rate.
Which 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 states state laws prohibit insurance companies from using credit scores to determine auto insurance rates:
- Washington (temporarily)
In some other states, such as Utah and Oregon, insurance companies cannot legally use your credit score as the basis for canceling 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, so having a good credit score can give you an advantage in finding cheaper rates. Unless you live in one of the five states listed above, you can probably expect auto insurance companies to look at your credit score when you apply for coverage.
Which insurance companies don’t check credit scores?
If you are looking for insurance companies that do not use credit scores, there are a few options available to you. However, you may be better off researching certain types of insurance rather than specific companies, especially if your situation requires specific financial protections. If finding a company that ignores credit is your main concern, here are two types of auto insurance that may not require a credit check to get approved.
If you go with a usage-based insurance company, your monthly premium is based on distance traveled, rather than a fixed annual or semi-annual rate. It’s also called kilometer insurance, and it can be a cheaper option for occasional 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 can offer check-free coverage:
- Root insurance
- Milewise® from Allstate
- Nationwide SmartMiles®
When it comes to usage-based insurance, it may not be ideal for drivers who travel long distances. Based on the pricing structure, it can actually be more expensive than traditional auto insurance if you drive every day, for example to regularly commute to work or school.
If you’re worried about getting expensive auto insurance quotes due to bad credit, another option to consider is telematics-based insurance. While this does not bypass a credit check in all scenarios, it can provide you with more affordable rates if your driving habits are still safe. This type of car insurance uses a telematics device or mobile app to track your driving habits, such as average speed and how fast you brake.
Rather than paying a fixed monthly rate or a rate based on a specific distance traveled, a telematics-based insurance premium is based on the safety (or insecurity) of your driving. Even if you have a bad credit rating, you could potentially compensate for it by demonstrating safe driving skills.
Here are some of the telematics-based insurance programs that may not require a credit check:
Frequently Asked Questions
What is the best auto insurance company?
The best auto insurance company is different for every driver. For example, Amica might be the best option for you, but for your military neighbor, USAA might be a better choice. To find the best supplier for you, spend time comparing suppliers using your personal criteria for the top priorities, then get multiple quotes to make sure you get the best price for your situation.
How much does auto insurance cost?
In the United States, the average cost of auto insurance is $ 1,674 per year for a full coverage policy, according to Bankrate’s 2021 study of Quotes from Quadrant Information Services. However, each driver pays a different rate depending on their particular situation.
How do I get auto insurance with bad credit?
Having bad credit on its own usually won’t affect your ability to purchase auto insurance, but you might pay a higher premium. To get cheaper coverage, you can benefit from comparing quotes from companies specializing in auto insurance for drivers with bad credit.