Yes, State Farm uses your credit history to help calculate car insurance premiums in most parts of the country. However, the insurer does not use your regular lending credit score directly, and several state laws prohibit or restrict the practice entirely. This guide explains how State Farm evaluates credit data, where legal exceptions apply, and how your financial history influences your coverage costs.
How State Farm Evaluates Your Credit
When you apply for auto coverage, State Farm calculates what the industry calls a credit-based insurance score. While derived from the information found in your standard credit report, this score is distinct from the FICO or VantageScore models that banks use when evaluating mortgage or auto loan applications.
Lenders look at credit reports to predict whether you will repay borrowed money on time. Auto insurers use specific credit data because actuarial studies show a statistical link between certain credit management habits and the frequency or severity of filed insurance claims. State Farm uses this score alongside other underwriting variables to determine your risk tier and set your policy premium.
A soft credit inquiry occurs when State Farm retrieves your credit record. Soft inquiries do not lower your consumer credit score, do not appear to other lenders reviewing your credit history, and do not affect future loan approvals.
Differences Between Credit Scores and Insurance Scores
Traditional credit scoring models weigh factors to determine default risk. Credit-based insurance scores weigh information differently to assess loss probability. Insurance scores focus primarily on stability and long-term financial management.
Several factors carry significant weight in calculating an insurance score:
- Consistent on-time payment history across installment accounts and revolving credit cards
- Length of overall credit history and age of open accounts
- Total outstanding debt and credit utilization ratios across credit lines
- Presence of adverse public records, including collection accounts, bankruptcies, or foreclosures
- Frequency of recent hard credit inquiries from new credit applications
Insurance scoring algorithms do not consider your personal income, assets, employment history, race, gender, marital status, or the interest rates you pay on existing debt.
States Where State Farm Cannot Use Credit Data
State insurance regulators govern how carriers price auto policies, and some jurisdictions forbid companies from factoring credit into underwriting or rate calculations. In these locations, State Farm cannot request or use your credit information to determine eligibility or pricing.
Full bans apply in the following states:
- California: Under Proposition 103, insurers may only rely on approved driving-related factors such as driving safety record, annual miles driven, and years of driving experience.
- Hawaii: State law strictly prohibits auto insurers from considering credit ratings or credit history in rate-making models.
- Massachusetts: State regulations prohibit carriers from using credit reports or credit scores at any stage of the policy lifecycle.
- Michigan: Under comprehensive auto insurance reform rules, carriers cannot use credit scores, insurance credit scores, or postal codes to adjust auto insurance premiums.
Other states place partial restrictions on credit scoring. For instance, some jurisdictions allow insurers to check credit when establishing a new policy but forbid carriers from canceling policies, refusing renewals, or increasing rates purely due to a drop in your score during a renewal cycle. In states where credit evaluation remains legal, State Farm must comply with state insurance department filings that dictate how heavily credit data can influence premium brackets.
How Your Score Affects Your Monthly Premium
In states where insurance scores are permitted, drivers with poor or limited credit history face notably higher premiums than drivers with good or excellent credit profiles. Industry data indicates that moving from an excellent credit tier to a poor credit tier can increase annual premiums by 50% to over 100%, even for a motorist with an entirely clean driving record.
Drivers with exceptional credit scores receive preferred pricing tiers because insurers view them as statistically less likely to file comprehensive or collision claims. Conversely, drivers with multiple delinquencies or high credit utilization are placed in standard or non-standard risk tiers, which carry higher baseline rates.
Your credit-based insurance score is never evaluated in a vacuum. State Farm combines your financial stability profile with key driving factors, including your recent driving record, vehicle make and model, annual mileage, primary garage location, coverage limits, and deductible amounts. A driver with an imperfect credit score but years of accident-free driving can still obtain competitive rates relative to high-risk drivers with moving violations or at-fault accidents.
Consumer Rights and Credit Report Inaccuracies
The federal Fair Credit Act requires insurance companies to follow specific consumer disclosure protocols whenever credit data negatively impacts pricing.
If State Farm quotes you a higher rate, places you in a higher pricing tier, or denies coverage based in whole or in part on information from your credit file, the company must provide an adverse action notice. This document outlines the primary credit factors that contributed to the pricing decision and identifies the consumer reporting agency that supplied the data, such as LexisNexis, Equifax, Experian, or TransUnion.
Receiving an adverse action notice grants you the legal right to request a free copy of the underlying consumer report within 60 days. If you review the report and spot inaccurate balances, erroneous collection accounts, or incorrect identity details, you can file a formal dispute directly with the reporting agency. If corrections are made to your credit file, you can request that State Farm re-underwrite your policy using the corrected information to adjust your premium accordingly.
Ways to Offset Higher Rates from Lower Credit
If your credit history currently places you in a higher rate tier with State Farm, several adjustments can reduce your total outlay while you work on rebuilding your score.
Enrolling in voluntary telematics programs offers direct premium relief. State Farm’s Drive Safe & Save mobile program tracks actual driving behaviors—such as braking, speed, acceleration, and phone distraction—and applies policy discounts based strictly on your habits behind the wheel. Drivers who demonstrate safe driving routines can offset baseline rate surcharges.
Reviewing deductible thresholds provides immediate savings. Increasing a comprehensive and collision deductible from $500 to $1,000 lowers the premium for physical damage coverage. Combining your auto insurance with a renters, condo, or homeowners policy through State Farm also triggers multi-policy bundling discounts that help soften the impact of an unfavorable credit-based insurance score.
