In most U.S. states, the rate you pay for car insurance depends substantially on your credit score, even when you have a clean driving record. Insurers call this a “credit-based insurance score” and defend it as actuarially sound. It is true that the practice correlates with claims. It is also true that, in effect, it lets insurers charge poorer drivers more for the same coverage as wealthier neighbors with identical driving histories — and the regulatory response has been astonishingly thin.
How big the gap actually is
Consumer Reports analyzed quotes across more than two billion price points and found that a driver with poor credit and a clean record pays, on average, more than a driver with excellent credit and a recent DUI in many states. Read that twice. The credit-only effect can roughly double premiums in states like Michigan, New Jersey, and New York. California, Hawaii, and Massachusetts ban or sharply restrict the practice — and the sky has not fallen in those markets. Companies operating across all 50 states have managed it without going broke. That tells you the practice is a pricing choice, not a structural necessity.
The “it correlates” argument and its limits
Insurers argue that credit-based scores correlate with claims frequency, and the data does support that. But correlation isn’t a free pass to use any factor. Race correlates with claims too, in part because of historical residential and policing patterns; that doesn’t make race a permitted rating factor. Once a variable functions as a proxy for protected categories — and credit scores correlate strongly with race, income, and zip code — using it to set prices reproduces those disparities under a layer of math. The Federal Trade Commission’s own 2007 study found minority drivers paid significantly more on average through credit-based insurance scoring, even controlling for driving behavior.
The feedback loop nobody fixes
The deeper problem is that credit scores reflect financial life events that are themselves often products of bad luck or inadequate safety nets — a medical bill, a divorce, a stretch of unemployment. None of those make someone a worse driver. But because the credit hit raises premiums, and a higher premium can lead to a lapse in coverage, and a lapsed coverage record raises premiums further, the system creates a downward spiral that punishes people for being broke. It also makes auto insurance — required by law in most states — meaningfully harder for low-income workers to afford, which in turn pushes more drivers into uninsured status.
What real reform would look like
A serious reform package would either prohibit credit-based scoring outright (the California model) or require insurers to demonstrate that the score adds predictive power above a baseline of driving history, miles driven, and vehicle type — and only that incremental signal could be priced. Several state legislatures have introduced such bills since 2020. Most have died quietly in industry-friendly committees.
The takeaway
Pricing risk is what insurers do, but the variables they’re allowed to use are a public choice, not a natural law. Credit-based insurance scoring is a public choice that quietly transfers cost from wealthier drivers to poorer ones. It deserves to be argued about openly and, in most states, ended.
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