Why Your Neighbor With 2 DUIs Pays Less Car Insurance Than You

So I have a confession: when I was adjusting claims, I assumed people with bad driving records were the ones paying the highest rates. Bad drivers = expensive insurance. Makes sense, right?

Then I learned about credit-based insurance scores, and it completely changed how I understand car insurance pricing.

Here’s the maddening truth: in most states, your credit history has a bigger impact on your insurance rates than your actual driving record. A person with perfect credit and a DUI might pay LESS than a person with bad credit and a spotless driving record.

I know. It makes me angry too.

The Numbers Are Insane

According to research from The Zebra, drivers with “very poor” credit pay an average of $4,581 MORE per year than drivers with excellent credit.

Let me say that again: $4,581 per year. Just for having bad credit. Not for being a bad driver. Not for filing claims. Just for having credit problems.

Meanwhile, a DUI typically adds $1,500-$3,000 to your annual premium. So yeah—bad credit often costs more than drunk driving. Tell me how that’s fair.

How Credit-Based Insurance Scoring Works

Here’s the thing though. Insurance companies don’t use your regular FICO credit score. They use something called a “credit-based insurance score” which is calculated differently but still uses your credit report data.

The main factors include:

• Payment history — Late payments and collections hurt you
• Outstanding debt — How much you owe relative to your limits
• Length of credit history — Longer is better
• New credit inquiries — Too many applications look risky
• Types of credit — Mix of cards, loans, mortgage, etc.

Insurance companies claim there’s a correlation between low credit scores and higher claim likelihood. Studies have shown this correlation exists, but nobody really knows WHY. It might be that financial stress leads to distraction while driving. It might be that people with credit problems defer car maintenance. Or it might be that they’re just using credit as a proxy for other things they legally can’t use (like income or neighborhood).

The point is: it feels deeply unfair to charge someone more for car insurance because they went through a medical bankruptcy or lost their job during a recession.

States Where This Is Banned (Lucky You)

Some states have said “nope, this is BS” and banned the use of credit in insurance pricing:

• California — Completely banned since 1988
• Hawaii — Banned
• Massachusetts — Banned
• Michigan — Banned as of 2020

A few other states (Maryland, Oregon, Utah) have restrictions on how credit can be used—like insurers can’t use it to deny coverage or non-renew policies.

If you live in one of these states, congratulations—your insurance is based more on your actual driving and less on your financial history. For the rest of us, credit is a major factor.

The “But I’m a Good Driver” Problem

This is what gets me. I’ve talked to so many people who are frustrated because they’ve never had an accident, never filed a claim, never even gotten a speeding ticket—but they pay more than people with multiple at-fault accidents.

And the reason is credit.

Maybe they had medical debt from a surgery. Maybe they went through a divorce and their credit tanked. Maybe they were young and made some dumb financial decisions that are still following them a decade later. Maybe they just never had much credit because they paid cash for everything.

None of those things make you a bad driver. But they all make you a more expensive insurance customer.

How to Actually Lower Your Rate

Okay, so what can you do about it?

1. Check your credit report for errors. Seriously, do this. One in four credit reports has errors that could affect your insurance score. Get your free annual reports from annualcreditreport.com and dispute anything that’s wrong.

2. Work on your credit. I know this takes time, but every improvement in your credit score can lower your insurance rate. Pay bills on time. Pay down balances. Don’t close old accounts (length of history matters).

3. Shop around aggressively. Different insurers weight credit differently. One company might destroy you for a low credit score while another is more forgiving. Get quotes from at least 5-6 companies. I have a whole guide on lowering your car insurance costs.

4. Ask about “first accident forgiveness” and similar programs. Some insurers offer programs that reduce the impact of credit on your rate if you maintain a good driving record.

5. Consider pay-per-mile or usage-based insurance. Companies like Metromile or programs like Progressive’s Snapshot focus more on how you actually drive and less on your credit score.

6. Move to California, Hawaii, Massachusetts, or Michigan. (I’m kidding. Mostly. Kind of.)

Why Do Insurance Companies Do This?

Insurance companies argue that credit-based pricing is actuarially justified—meaning their data shows a real correlation between credit and claims.

Consumer advocates argue that it’s discriminatory—that it disproportionately affects low-income people and minorities, and that it penalizes people for circumstances outside their control (like medical debt or job loss).

The truth is probably somewhere in between. There IS a statistical correlation. But using it feels morally wrong when a medical bankruptcy survivor pays more for car insurance than a drunk driver.

This is one of those areas where I left the insurance industry feeling conflicted. The data is real. But the impact is unfair. And until more states ban the practice, it’s going to keep happening.

What You’re Actually Being Rated On

Just so you know all the factors that go into your car insurance rate (since we’re talking about why rates went up in 2024):

• Credit-based insurance score (huge factor in most states)
• Driving record (tickets, accidents)
• Age (young drivers pay more, then it drops, then it rises again after 65)
• Gender (yes, still legal in most states)
• Location (ZIP code matters a lot)
• Vehicle type and age
• Annual mileage
• Coverage levels and deductibles
• Marital status (married people pay less)
• Education level (in some states)
• Occupation (in some states)
• Homeownership (in some states)

Your actual driving ability? That’s like… maybe 20% of the equation. The rest is all this other stuff.

The Bottom Line

Look, I’m gonna be real with you: the car insurance system is not designed to be fair. It’s designed to be profitable. And using credit scores is profitable because it’s a fairly good predictor of claims, even if we don’t know why.

Until more states ban the practice, your best defense is:

1. Understanding that credit matters
2. Checking your credit report for errors
3. Improving your credit over time
4. Shopping around obsessively

And if you live in California, Hawaii, Massachusetts, or Michigan? Consider yourself lucky. For the rest of us, credit is the invisible hand that’s probably picking your pocket.

Collision just got into a fight with a squirrel. She won. No claims filed, no effect on her insurance score. If only humans had it that simple.