Credit Check Conundrum: Kentucky's Auto Insurance Credit Pull Practice

In Kentucky, auto insurance companies can use a soft credit check to determine risk and set your premium. This is known as a credit-based insurance score and is based on your payment history and the age of your credit history. While it can affect your premium, it is not the primary factor dictating your rate. Other factors include your driving record, location, demographics, and the type of vehicle you drive.

Credit-based insurance scores

• Payment history
• Accounts in collections
• Credit card balances and credit limits
• The age of your credit accounts
• The types of credit you use
• How much past-due debt you have
• Whether you recently applied for credit
• The scores predict different things. Credit-based insurance scores predict the likelihood that someone will file claims that lead to a loss for the insurance company. Credit scores predict the likelihood that someone will miss a bill payment.
• The score ranges aren't the same. Most credit scores range from 300 to 850, while credit-based insurance scores may have very different ranges, such as 200 to 997 for the LexisNexis Attract score.
• Insurers have to consider more than your score. State laws generally don't allow insurance companies to decline applications or set your rates based solely on a credit-based insurance score.
• You can't easily check your credit-based insurance scores. In contrast, it's easy to get copies of your credit reports and scores.

Credit history

In the context of auto insurance, a higher credit score is generally associated with lower insurance rates. This is because historical data shows that drivers with poor credit file more claims, and these claims tend to be more costly for the insurer. As a result, those with poor credit may be subject to higher premiums or even denied coverage.

In the state of Kentucky, credit score is one of the factors that influence car insurance rates. However, it is important to note that certain states, including California, Hawaii, and Massachusetts, have laws prohibiting the use of credit information in car insurance pricing.

Credit checks

In Kentucky, a poor credit score can lead to higher insurance costs. However, it is important to note that insurance companies do not rely solely on credit scores when making decisions. They also consider other factors such as driving record, location, demographics, vehicle type, insurance type, and discounts.

While most insurers use credit checks, some provide auto insurance with no credit check. However, purchasing insurance from a company that doesn't check credit may not necessarily result in lower rates.

It is worth noting that getting insurance quotes does not hurt your credit score, and you can get quotes from multiple companies to find the best rate.

Insurance companies that don't check credit

In the United States, insurance companies can check your credit history and use it to set your premium unless you live in California, Hawaii, Massachusetts, or Michigan. These four states ban insurance companies from factoring credit when determining car insurance rates. In some other states, like Maryland, Utah, and Oregon, insurance companies cannot legally use your credit score as a basis for canceling an auto insurance policy or refusing to renew an existing policy.

There are a few insurance companies that sell auto insurance with no credit check, including:

• CURE: This nonprofit insurance carrier bases rates on customers' driving records and is currently available in Michigan, New Jersey, and Pennsylvania.
• Dillo: This company provides auto insurance policies to customers in Texas, even those with tickets, accidents, lapses in coverage, or no prior coverage, without checking credit.
• Empower: Empower Insurance offers several car insurance options, some of which don't use credit when calculating premiums. Empower is also only available in Texas.
• Root: This company has vowed to phase out the use of credit when setting rates and is the first car insurance company to do so.
• Metromile: This company offers pay-per-mile insurance, which bases your premium on the distance you drive rather than a fixed annual or semi-annual rate.
• Milewise® from Allstate: This is another pay-per-mile insurance option.
• SmartMiles® from Nationwide: This is another pay-per-mile insurance option.

Usage-based insurance and telematics insurance are also good options for drivers with poor credit. These programs base your insurance rates primarily on your driving performance and frequency rather than demographics alone.

Improving credit scores

Improving your credit score is a good goal to have, especially if you plan to apply for a loan to make a major purchase. Here are some tips to improve your credit score:

• Make on-time payments: Your debt payment history accounts for 35% of your FICO score and is the most important credit score factor.
• Pay down revolving account balances: How much you owe accounts for 30% of your FICO score, and your credit utilization rate is a major element.
• Don't close your oldest account: The length of your credit history makes up 15% of your FICO score and is heavily influenced by the age of your oldest account.
• Diversify the types of credit you have: Credit mix accounts for 10% of your FICO score and involves managing different types of credit.
• Limit new credit applications: Each hard inquiry will typically knock fewer than five points off your credit score, but multiple inquiries in a short period can have a compounding negative effect.
• Dispute inaccurate information on your credit report: Inaccurate credit report information can have a significant negative impact on your credit score.
• Become an authorized user: If you're new to credit, having a loved one add you as an authorized user on their credit card can positively impact your credit score.
• Pay credit card balances strategically: The portion of your credit limits you're using at any given time is called your credit utilization. A good guideline is to use less than 30% of your limit on any card.
• Ask for higher credit limits: When your credit limit goes up and your balance stays the same, it instantly lowers your overall credit utilization, which can improve your credit.
• Get credit for rent and utility payments: Rent-reporting services can add your on-time rent payments to your credit reports. Experian Boost is a free service that scans for payments to streaming services, phone and utility bills, as well as eligible rent payments.

Frequently asked questions