passed on January 28 and was received by the General Assembly the following day. It is currently pending review by the Assembly Financial Institutions and Insurance Committee. The New Jersey government moves forward as pressure grows to curb unfair insurance practices across the country.
States are focusing specifically on the use of credit scores to set premium rates after the
(CFA) released a report revealing that the practice unfairly penalizes lower-income Americans and contributes to systemic racism.
How credit scoring affects your car insurance
Credit scores are usually used to determine whether you can be trusted to pay off loans or buy products through financing agreements. Since you pay for your insurance policy before insurers cover you, it might seem odd that your credit score plays a role in setting your rates.
But insurance providers decide what you pay for insurance based on estimated risk, and, in 2007, the
, which means your insurance provider is more likely to lose money by covering you. To make up for that risk, the company will raise your rate—the lower your score, the higher the price.
Depending on your credit score and your state, you could pay more than twice what someone with an excellent score pays, even if both of you have clean driving records.
, four states have already outlawed credit scoring for determining insurance rates:
California
Hawaii
Massachusetts
Michigan
Besides New Jersey, bills and/or temporary bans are also in process in the following states:
Colorado (bill passed state Senate, in the House Health and Insurance Committee)
Oregon (bill in committee)
Washington (bill in committee with a three-year ban in place)
West Virginia (in Senate committee)
Federally, New Jersey Rep. Bonnie Watson Coleman (D) introduced a bill to Congress called the PAID Act in February. If passed, the bill would outlaw the use of credit scoring for determining insurance rates in the U.S. It’s currently in the hands of the House Subcommittee on Consumer Protection and Commerce.
There are already limits on how your credit score can be used to set your insurance rates in Oregon. Insurance companies can’t deny your application or refuse to renew it based on your credit score. Similar laws also exist in Illinois, New York, and Utah.
Car Insurance laws are very different from state to state. In Virginia and New Hampshire, you’re not even legally required to have auto insurance at all!
All this variety can make shopping for insurance intimidating. Luckily,
makes it fast and easy. After a quick signup, Jerry does the work for you by comparing policies and premiums from up to 45 different companies so you know you’re getting the best deal, no matter where you live.