Insurance companies use a wide variety of data points to evaluate risk and set policy premiums. While most drivers know that their driving record and vehicle type influence auto insurance rates, fewer realize that financial history plays a massive role as well. State Farm, like most major national carriers, uses a credit-based insurance score to help determine what you pay for coverage.
A credit-based insurance score is a specialized numerical rating calculated from the information on your consumer credit report. State Farm uses this score alongside traditional factors—such as your driving history, vehicle make and model, age, location, and annual mileage—to calculate your premium. Understanding how this score works, how it differs from a standard credit score, and how it impacts your rate can help you take steps to lower your overall premium.
Credit-Based Insurance Score vs. Regular Credit Score
Although a State Farm credit-based insurance score relies on data from the major credit bureaus, it is distinct from the regular credit score a lender views.
A standard credit score, such as a FICO or VantageScore, measures your creditworthiness and the likelihood that you will pay back borrowed money on time. Lenders evaluate your income, debt-to-income ratio, and borrowing history to decide whether to approve a mortgage, credit card, or auto loan.
A credit-based insurance score measures actuarial risk—specifically, the statistical likelihood that you will file an insurance claim. Decades of industry research demonstrate a strong statistical correlation between how a person manages their credit and their probability of getting into an accident or filing a claim.
Insurance scores do not consider your total income, employment history, or personal demographics. Furthermore, unlike a bank evaluating a loan application, State Farm will not deny you coverage or cancel your policy based solely on a poor credit-based insurance score; instead, the score is primarily used to assign your rate tier.
Key Factors That Shape Your Insurance Score
State Farm retrieves credit report data—often through third-party consumer reporting agencies like LexisNexis—to build your insurance score. The calculations weigh specific elements of your credit file that highlight long-term stability and responsible debt management.
- Payment History: Timely payments on credit accounts, loans, and mortgages positively impact your score. Delinquencies, late payments, accounts sent to collections, or past bankruptcies significantly lower your score.
- Credit Utilization: The proportion of your available revolving credit that you are actively using plays a key role. Keeping revolving credit balances low relative to your total credit limits demonstrates sound financial control.
- Length of Credit History: An older, established credit profile provides more data points showing stable financial behavior over time, which benefits your overall score.
- Applications for New Credit: Frequently opening new lines of credit or submitting multiple hard inquiries within a short period can lower your score, as it may signal financial distress.
- Credit Mix: Maintaining a healthy mix of revolving credit accounts (like credit cards) and installment loans (like auto loans or mortgages) indicates experience in managing different debt obligations.
Does State Farm’s Credit Check Hurt Your Credit Score?
A common worry among drivers is that getting an insurance quote will trigger a hard credit inquiry and lower their credit score.
When State Farm checks your credit history during a policy quote or renewal, it performs a soft inquiry. Soft inquiries are visible to you on your personal credit reports, but they are completely hidden from financial institutions, lenders, and credit card companies. A soft check does not alter your FICO score, decrease your credit rating, or impact your ability to qualify for loans. State Farm can check your score periodically at renewal times without causing any collateral damage to your credit profile.
Financial Impact on Your Monthly Premiums
The difference in auto insurance pricing between a driver with excellent credit and one with poor credit can be substantial.
Insurance actuaries sort policyholders into rating tiers based on risk. Drivers with high credit-based insurance scores qualify for preferred rates and discounts, leading to lower monthly premiums. Conversely, drivers with lower scores fall into higher risk tiers. Nationally, drivers with poor or limited credit histories can end up paying significantly more for the exact same coverage options compared to drivers with exceptional credit profiles.
While a clean driving record helps offset some cost, having poor credit can still lead to elevated rates. Combining a moving violation or an at-fault accident with a low credit score creates a cumulative effect that raises premiums even higher.
State Restrictions and Regulatory Exceptions
The use of credit-based insurance scores is not uniform across the United States, as state laws dictate whether insurance carriers are permitted to use consumer financial data.
Several states have enacted legislation that restricts or completely bans insurers from using credit scores to determine car insurance rates or issue coverage:
- California: Banned the use of credit scoring for auto insurance pricing under Proposition 103. Rates are determined primarily by driving safety record, years of driving experience, and annual mileage.
- Hawaii: Prohibits insurance companies from using credit history or age to set auto rates.
- Massachusetts: Prohibits insurers from factoring credit scores into auto policy pricing or underwriting decisions.
- Michigan: Banned credit-based insurance scoring as part of its auto insurance reform regulations.
In addition, states like Maryland, Oregon, and Utah place specific limits on how credit scores can be used. For example, some jurisdictions permit credit checks for initial quotes but ban companies from raising rates or canceling policies based on credit changes at renewal. If you live in a state with a complete ban, State Farm relies solely on non-credit factors to price your policy.
Extraordinary Life Circumstances Exceptions
State Farm and other major insurers recognize that severe, unexpected events can disrupt an otherwise clean financial record. Most states mandate that insurance companies offer an Extraordinary Life Circumstance (ELC) exception process.
If your credit-based insurance score dropped due to a qualifying life event, you can request an exception review through your State Farm agent. Qualifying events typically include catastrophic medical emergencies or acute illnesses, the death of an immediate family member, temporary involuntary unemployment, divorce, identity theft, or natural disasters. If approved, State Farm can recalculate your rate or adjust your risk tier to prevent an unfairly inflated premium resulting from temporary financial hardship.
How to Improve Your Score and Lower Your Premium
Because credit-based insurance scores reflect long-term financial patterns, improving your standing takes time, but the payoff can mean lower premiums.
Focus on paying every bill by its due date, as payment history carries the most weight in your score. Pay down revolving credit card balances to keep your overall utilization below 30% of your total limits. Avoid opening multiple unnecessary credit accounts at once, and review your credit reports annually at AnnualCreditReport.com to ensure there are no inaccurate errors, fraudulent accounts, or late payments dragging your score down.
If you have worked hard to rebuild your financial profile over the past year, do not assume your rate will decrease automatically. Contact your local State Farm agent to ask for an updated credit-based insurance check. Once your new, improved score is pulled, State Farm can re-evaluate your rating tier and potentially apply lower rates to your next policy term.
