Car insurance rates steadily rise, and premiums can skyrocket if a driver presents a bad driving record. But there are other factors car insurance companies use when determining car insurance rates, and the abolition of this practice could put money back into consumers’ pockets.

For years now, car insurance companies have used a driver’s credit score to decide how much their premiums will cost.

Insurance companies claim that a credit check allows them to determine whether someone is a safe driver, since good credit is apparently an indication of a good driving record. But where’s the correlation?

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The car insurance credit problem

On the plus side, a recent study by Jerry has shown that consumers pay more for insurance in states that allow car insurance companies to make credit checks. This means as the trend of not allowing credit scores goes up, insurance costs should fall.

In particular, Black and Latino drivers are charged more for their insurance premiums, even with spotless driving records, because their credit scores tend to be lower or nonexistent.

Car insurance companies claim that the credit score check is a reliable way to determine a driver’s risk factors, but it disproportionately harms consumers of color.

And, there are better ways to figure out whether a driver will be riskier to insure or not, such as their driving record.

States take issue with credit-based pricing

The problem has attracted attention from state lawmakers, many of whom agree that the credit-based pricing insurance companies tout is harmful.

Many states, including Colorado, New Jersey, New York, and Oregon, have already taken the lead to ban the practice.

Other states

are joining in, and looking at abolishing the practice as well.

Some car insurance companies are also in agreement for banning the credit check. Car insurance company Root Inc. and Loop are promising to make car insurance more affordable and more ethical. Root Inc. employs a credit-check-free method of determining premium pricing, and has pledged to be part of the efforts to ban the practice in all 50 states by 2025.

For now, the conversation continues at the state, corporate, and even federal level, offering a hope to consumers of color that car insurance premiums will become more affordable. And, more importantly, equitable.

Credit Score Jerry Original Data

Written By

Bellina Gaskey · Content Editor & Head of Video

Bellina Gaskey is an expert insurance editor who specializes in creating video content car owners can use to reduce costs, master repair skills, and learn more about insurance. As Jerry’s head of video content, Bellina has scripted and appeared in over 300 videos on car ownership, insurance tips, and automotive news with over 3M views. In addition to videos, Bellina has edited nearly 2,000 articles on car ownership and home insurance topics. Prior to joining Jerry in 2021 as a content editor, Bellina worked as a media consultant for a legal e-discovery startup and as a research assistant at the University of Michigan, where she completed a degree in Classical Languages and Literature.

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