Are There Car Insurance Companies That Do Not Use Credit Scores?

Root Insurance plans to be the first insurance company to phase out credit scores from its rate calculations, but no provider has done so as of 2022.
Written by Cameron Thiessen
Reviewed by Pat Roache
As of 2022, there are no car insurance companies that don’t check credit scores in states where it is legal. However, it is against the law for an insurance company to base auto insurance rates on credit scores in
California
,
Hawaii
,
Massachusetts
, and
Michigan
.
Unfortunately, bad credit history can make financial life difficult, including affecting things like
car insurance
rates. Most car insurance companies will take the information from your credit report and plug it into an algorithm that determines your insurance premium pricing.
We’ll talk about why car insurance companies check credit scores, how much your credit rating impacts car insurance quotes, and how to make positive changes to improve your credit score.
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What insurance companies don’t check credit scores?

There aren’t any insurance companies that have eliminated credit checks for car insurance quotes, although Root Insurance plans to be the first to do so.
The Fair Isaac Corporation, the originator of the FICO credit score system, reported that an estimated 95% of companies use credit-based insurance scores in states that allow it. However, whether or not your credit is checked by a car insurance company might be determined by what kind of car insurance you buy.
Most states allow credit scores to be used when
car insurance companies calculate their quotes
, but the practice is outlawed in California, Hawaii, Massachusetts, and Michigan. Unfortunately, if you want to get car insurance in a state that allows credit-based insurance scores without having your credit checked, you’ll probably have to sacrifice some privacy.
Usage-based insurance companies that offer pay-per-mile insurance may not require a credit check. Similarly, telematics car insurance may also be offered without a credit check. Usage-based insurance companies use devices and/or smartphone apps to track your driving habits.

Pay-per-mile insurance

Pay-per-mile car insurance
policies require a device installed in your car to track how many miles you drive and charge you a flexible rate based on your usage. The philosophy behind this is that if you’re not on the road as often, you’re less likely to need to make an insurance claim.
Usage-based auto insurance companies include:
It’s important to note that while a pay-per-mile insurance policy doesn’t work the same way as
telematics
insurance, some of your driving habits may still be tracked in addition to mileage. In many cases, pay-per-mile insurance companies will offer discounts or rebates for drivers who are found to be practicing safer driving habits.

Telematics insurance

A pay-per-mile car insurance policy will mostly base your pricing on how many miles you drive. On the other hand, telematics car insurance monitors things like vehicle speed, harsh braking/acceleration, driving time, the time of day that you drive, and your mobile device usage while you drive. These are analyzed in addition to your mileage using a mobile phone app.
Common telematics car insurance programs include:

Why do car insurance companies check your credit rating?

Car insurance companies check your credit information, because, more than anything, they are trying to assess your risk and protect their finances.
Okay, so how does checking credit scores help car insurance companies protect their money? It all comes down to data analysis. Data from the Federal Trade Commission have shown that drivers with lower credit ratings are more likely to file claims than drivers with high credit ratings.
Not only that, related data has revealed that when drivers with low credit do make claims, these claims are more likely to be especially costly to their insurance company. So regardless of how good of a driver you are, a low credit rating will cause you to be seen as a
high-risk driver
.

How much does your credit score impact your car insurance rates?

Short answer: significantly. Your credit score will never be the only thing that affects your car insurance rates. Other rating factors that will impact your insurance score include your driving record, your claims history, the car you drive, your marital status, and where you live.
According to Forbes Advisor, underwriters increase car insurance rates by an average of 76% for people with low credit scores. However, this varies from state to state. 
Insurance costs are more than doubled for drivers with poor credit in
Arkansas
,
South Dakota
,
Nebraska
,
Wisconsin
, or
Utah
. On the flip side, the increase is below 50% for drivers living in
Wyoming
,
Florida
,
North Carolina
, and
Washington
. The lowest average increase for poor credit is 33% in
New York state
.
However, Forbes Advisor’s study found
Louisiana
to be the most expensive state for car insurance for drivers with bad credit, with an average premium rate increase of $2,768 due to poor credit.
The study found that Auto-Owners was the most expensive car insurance company for drivers with bad credit.
State Farm
had the highest average increase, however, at 174% for drivers with low credit scores.
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How to improve your credit score

The number one way to improve your credit score is to develop a consistent habit of paying your bills on time and limiting late payments. Of course, that’s easier said than done if you’re struggling financially. Here are some other practical ways that you can work towards improving your credit score.

Review your annual credit reports

You can review your free credit report online at
AnnualCreditReport.com
. You can also call 1-877-322-8228. Or, you can complete an
Annual Credit Report Request Form
and mail it to:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
According to the Federal Trade Commission, 25% of U.S. consumers find errors in their annual credit reports. A single error could be having a significant impact on your credit score, so reviewing your report and reporting errors might be a game-changer.

Pay off old debts

If you’ve racked up a lot of outstanding debt, you’ll raise your score more quickly if you pay off old debts first. Getting rid of outstanding debts to lenders, especially ones that have moved to collections, is an important initial step to setting yourself up for a credit rebuild.

Keep old accounts open and refrain from opening new credit accounts

Keeping old credit accounts open will help to maintain your credit history and ultimately help you improve your overall credit utilization. Experts recommend keeping credit usage below 30% of the credit limit to maintain fair credit ratings. Conversely, opening new accounts will usually result in a hit to your credit rating, since most creditors will do a full credit check when you do so.

Ask for higher credit limits and limit your usage

Be careful with this one, because it’s easy to see a higher credit card limit and be tempted to spend more money. However, if you can refrain from using the extra credit granted from an increased limit, you’ll improve your use of credit rating, which significantly impacts your credit score.

Seek credit counseling

If you’re having trouble tackling your debt on your own, many people find credit counseling to be extremely helpful. A good place to start if you think you might benefit from credit counseling is the
National Foundation for Credit Counseling
, a non-profit organization that specializes in this area.
MORE: Does refinancing a car hurt your credit score?
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FAQs

Yes. On average, GEICO charges higher rates for drivers with poor credit, with an average increase of 43%, according to Forbes Advisor
Although the practice is becoming more and more controversial, insurance companies are allowed to use your credit score in all states except for California, Hawaii, Massachusetts, and Michigan. The practice of credit-based insurance scores has been legally banned in these states.
No, you should be able to get insurance coverage despite having a low credit score. However, drivers with good credit usually get more affordable car insurance premium rates, while low credit usually results in higher premiums.
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