Washington State Banned Credit Scores. Here’s What This Means for the Price You Pay for Insurance

Washington credit based insurance score

If you’ve been waiting to shop for a better auto insurance rate, you might be in luck. Drivers in Washington state could start to pay less to insure their cars beginning June 20, 2021.

After June 20, 2021, insurance companies will no longer use credit scores to set rates for auto insurance and homeowners or renters insurance in Washington state.

The Washington state Office of the Insurance Commissioner issued an emergency rule in March 2021 to temporarily ban insurers from considering credit history to determine premiums and eligibility for personal property insurance. The new rule is in effect for three years after the coronavirus pandemic is declared over.

Because of this change, many drivers (and homeowners or renters) could see new insurance premiums. 

Drivers who may have previously received a lower rate because they have a strong credit history could now see their auto insurance premiums increase because of the credit score ban. The opposite is true, too: Drivers may be due for lower auto insurance premiums if they have a lower credit score.

Who will be impacted by Washington state’s credit scoring ban?

Washington state’s credit scoring ban will impact nearly all of the state’s residents with personal auto, homeowners, or renters insurance. 

About 200 companies are licensed to sell auto, homeowners, and renters insurance in the state, and according to the Washington state Office of the Insurance Commissioner, 97% of these insurance companies recently filed new rates to comply with the order.

The Washington state insurance regulator reports about 1.3 million people should expect a change in the premiums they pay for auto, homeowners, or renters coverage over time. 

Depending on someone’s credit history, this might mean someone might have to pay more or less for their insurance coverage when they renew their policies for another term.

How do insurance companies use credit scores?

Some insurance companies might use a credit score as one factor to determine the rates they charge, often in addition to other factors.

Auto insurance companies sometimes consider a credit-based auto insurance score as one factor to set premium prices. If auto insurers consider credit, they might use it alongside factors such as a driver’s experience or history, accident or claims history, the type of car driven, or how far someone typically drives.

Additionally, insurance companies sometimes use similar credit scores for homeowners and renters insurance.

Which states have credit scoring bans for insurance?

Washington state is not the first state to restrict insurance companies from using credit-based insurance scores.

California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, and Utah forbid insurance companies from using credit-based scores or someone’s credit history to set rates or make some underwriting decisions, such as canceling a policy, refusing coverage, or renewing a policy, for auto or homeowners insurance. 

Other states have temporary bans or are considering similar restrictions.

Why do insurance companies use credit scores to determine premium costs?

Insurance companies use different types of data to help make sure the premiums they charge are fair for consumers. They might use someone’s credit history as an additional data point to ensure their premiums are competitive and predictive of someone’s insurance risk. 

Credit-based insurance scores are designed to help insurers predict the risk of accidents or other claims.

What can I do to make sure I have a fair insurance rate?

Some consumer groups believe Washington state’s decision to ban credit scores is a step in the right decision to ensure insurance is fairer for more people. 

You can also take steps on your own to get an equitable insurance rate.

Pay-per-mile auto insurance considers how someone actually uses their car, notably how far someone drives or whether they drive often. As a result, drivers can earn and pay fairer auto insurance rates.

Most car insurance companies charge drivers a flat rate for coverage each month or policy term. This approach to pricing can be problematic as it might not consider lifestyle changes as they occur, like if someone starts to work from home more often or replaces their driving with car-sharing, ride-sharing, or public transportation.

With pay-per-mile auto coverage, sometimes called pay-as-you-go or pay-as-you-drive insurance, drivers pay a low monthly fee to help keep their car covered and then a low per-mile rate, usually a few cents for each mile driven. Sometimes, there are caps on the miles charged. For example, Metromile doesn’t charge its customers for miles driven over 250 miles (or 150 miles in New Jersey) in a single day.

Is pay-as-you-drive auto insurance a good alternative?

Metromile, a leader in pay-as-you-drive auto insurance, uses technology to accurately and securely bill someone for the miles they drive. The company also uses this technology, sometimes called telematics technology, to understand someone’s driving behavior, such as how many miles are driven, the speed, or how drivers brake or make their turns.

If you’re not sure if Metromile or pay-per-mile is right for you, you can take a Ride Along™ trial for free. You’ll keep your current insurance provider but download the Metromile app and let us ride along so we can learn how you typically drive.

The Metromile app will let you know how many miles you drive and how much you might save if you switched to Metromile at the end of your 17-day trial. If you demonstrate you’re a safe driver during the trial, you could also save up to an additional 15% off your initial quote in select states.

Metromile also uses information from its telematics technology to determine if someone might qualify for additional discounts for safe driving or help drivers find their car if it’s ever lost or stolen and check on their car’s health.

The bottom line

Washington state recently banned insurance companies from using credit scores to determine how much someone should pay for auto, homeowners, or renters insurance. The state hopes the new rule will make insurance rates fairer for more people.

You can take steps to get fairer insurance, even if you don’t live in Washington state or another state that bans the use of credit.

Drivers can choose a pay-per-mile car insurance policy, like Metromile, to help save money. According to a 2018 survey of new Metromile customers who saved, drivers who switched to Metromile saved an average of 47% a year. Most people are low-mileage drivers who don’t often drive or, more importantly, don’t drive long distances and could save with pay-as-you-drive coverage.