Last updated Feb. 10, 2025 by Charles Zemub
When it comes to selecting an insurance policy, many consumers are often surprised to learn that their credit score can play a significant role in determining their premiums. Credit scores are frequently used by insurance companies as an indicator of risk – the lower the score, the higher the perceived risk, and consequently, the higher the insurance premium. However, not all insurance companies rely on credit scores to set rates. Some companies have recognized that relying on credit scores can be unfair to certain segments of the population and have opted to eliminate this criterion from their underwriting process. In this article, we will explore which insurance companies don’t check credit scores and delve into the benefits and potential drawbacks of this approach.
Why Do Insurance Companies Use Credit Scores?
Before diving into the list of insurance companies that don’t check credit scores, it’s important to understand why credit scores are used in the first place. Insurance companies argue that there is a correlation between a person’s credit score and their likelihood of filing a claim. Essentially, individuals with lower credit scores are perceived to be more financially stressed and, therefore, more likely to file a claim. This perception drives up the cost of insurance for individuals with lower credit scores and can make it difficult for them to find affordable coverage.
Companies That Don’t Rely on Credit Scores
While the majority of insurance companies incorporate credit scores into their pricing models, there are a few notable companies and types of coverage that take a different approach. These companies have opted out of using credit scores, opting instead to evaluate risk using other factors.
Non-Standard Insurance Companies
Non-standard insurance companies typically serve individuals who are considered high-risk, such as drivers with a history of accidents or traffic violations. These companies often don’t use credit scores to determine rates. Instead, they may focus more heavily on an individual’s driving record, age, and experience. An example of a non-standard insurance company is The General.
Usage-Based Insurance (UBI) Providers
Usage-based insurance companies base their premiums on how, when, and where you drive rather than relying on your credit score. These companies typically use telematics devices to collect data on driving behavior. Root Insurance is a usage-based insurance provider that claims it places more emphasis on driving behavior than on credit scores when determining premiums.
Mutual Insurance Companies
Mutual insurance companies are owned by their policyholders, which aligns the company’s interests with those of its customers. Some mutual insurers focus more on policyholder relationships and less on credit scores as a determinant of premium prices. Amica Mutual Insurance is an example of a company that historically has placed less emphasis on credit scores.
State Laws
Some states have regulations that restrict how insurance companies can use credit scores when determining rates. For instance, California, Massachusetts, and Hawaii have laws that prevent insurers from using credit scores to calculate auto insurance premiums. Residents in these states can seek coverage from any insurance company operating there, knowing that their credit score won’t affect their premium.
The Benefits of Not Using Credit Scores
For consumers, insurance companies not using credit scores can be beneficial. Here are a few reasons why:
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Fairness: Not using credit scores removes bias against individuals who have low credit scores due to circumstances beyond their control such as medical debts or economic downturns.
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Accessibility: Insurance can become more affordable and accessible to those who have historically been unable to obtain it due to poor credit scores.
- Encourages Better Practices: By focusing on actual risk factors like driving behavior or claim history, insurance companies can encourage better safety practices among their policyholders.
Potential Drawbacks
However, there are potential drawbacks to insurance companies not using credit scores:
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Higher Premiums for Some: Those with excellent credit might lose out on discounts or face higher premiums since credit score-based discounts wouldn’t apply.
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Limited Options: Not all insurance companies refrain from using credit scores, so finding suitable options might still be challenging.
- More Emphasis on Other Factors: Companies might put extra emphasis on other risk indicators, which might not always place consumers in a favorable light.
✓ Short Answer
Some insurance companies choose not to use credit scores as part of their underwriting process. Non-standard insurers, usage-based providers, and some mutual insurance companies like The General, Root Insurance, and Amica Mutual Insurance focus on other factors such as driving history and claims records. Additionally, certain states such as California, Massachusetts, and Hawaii have laws prohibiting the use of credit scores in determining rates, allowing consumers in these areas to find coverage without credit score considerations, increasing coverage access for individuals with lower credit scores.
FAQs
Q: Why do insurance companies consider credit scores?
A: Insurance companies use credit scores to predict risk. They believe that people with lower credit scores might file more claims, which increases the risk for them, thereby justifying higher premiums.
Q: Which states prevent the use of credit scores in insurance?
A: California, Massachusetts, and Hawaii have laws that prohibit insurance companies from using credit scores to set auto insurance rates.
Q: Can a good driving record offset a bad credit score in terms of insurance costs?
A: Yes, in some cases a clean driving record can help mitigate higher premiums that might result from a low credit score, especially with companies that emphasize driving history.
Q: Do all insurance companies look at credit scores?
A: No, not all insurance companies use credit scores in their underwriting process. Some, especially those in states with prohibitions, do not take credit scores into consideration.
Q: How can I find out if my insurance company uses my credit score?
A: You can contact your insurance provider directly and ask about their underwriting process and whether credit scores are considered. It may also be outlined in the terms and conditions of your policy.
Understanding the role of credit scores in insurance and knowing your options can help you make informed decisions when shopping for coverage. While not many companies avoid using credit scores, those that do offer valuable alternatives for individuals looking to escape the harsh penalties of a low credit score.
