Where Your Credit Score Can and Can’t Raise Your Insurance Costs
Summary
Some U.S. states are working to change laws that allow insurance companies to use people’s credit histories to set prices for home and car insurance. Currently, this practice is banned in a few states, but many still allow it, which can cause people with low credit scores to pay higher insurance costs.Key Facts
- Insurance companies often use a credit-based insurance score, created by firms like FICO and TransUnion, to decide insurance premiums.
- This score is different from a regular credit score and is based on factors like payment history and debt.
- People with low credit scores tend to pay more for insurance because they are seen as more likely to file claims.
- Studies show that homeowners with low credit scores pay about 24% more for insurance than those with high scores. Drivers with poor credit pay about 69% more on average.
- States like California and Massachusetts do not allow insurance companies to use credit history for home or auto insurance pricing.
- Some states, like Michigan and Hawaii, have partial bans or restrictions on how credit history can be used.
- Other states, including Oregon and Utah, have strict rules limiting how credit information can affect insurance decisions but do not ban the practice outright.
- Currently, there are bills in states like Iowa, New York, Oklahoma, and Pennsylvania that aim to ban or limit the use of credit history in insurance pricing.
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