Florida graduate student Alexis Brake is doing something pretty unusual. Not only is she pursuing a combined M.D./Ph.D. in neuroscience at the University of Miami, Brake has decided to steer clear of something most Americans rely on every day: credit.
She went to college on a scholarship, has no credit cards and paid cash for her car. And about that car: She only drives it about 6,000 miles a year, commuting part of the way to work.
So when her car insurance started going up repeatedly, by hundreds of dollars per year, she was puzzled.
She wondered: Could her non-existent credit rating be a reason for her rising auto insurance rates? She started calling around.
"I was calling not only my insurance company but multiple insurance companies. I would ask them all the same questions," she recalls before her commute to the university one morning in April.
"How does credit score get factored into my rate?" she wondered, "And uniformly they were not able to answer my question."
"Not able," as in the company staffers she spoke with really didn't know. The algorithms the companies use to set premiums were opaque, even to frontline workers.
An NPR investigation did try to get answers: How much does a driver's credit factor into how much they pay for car insurance, and why does it matter at all?
We obtained more than half a million insurance premium estimates for nearly every ZIP code in the country.
The data came from Quadrant Information Services, a pricing analysis firm that serves the insurance industry and consumers.
We found startling differences in auto insurance rates between drivers with poor credit and those with excellent credit — often thousands of dollars per year in premiums. There were also large differences between insurance companies across states and ZIP codes around the country.
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For example, State Farm appears to place much more emphasis on credit history than Progressive does, and a driver's credit history matters much more in Florida than it does in Idaho.
State Farm told NPR that credit history is one of many factors it uses to "charge a fair and lawful price for each policy," and that it considers the practice "objective and supported by actuarial and statistical evidence."
Progressive referred NPR to an insurance industry group. Dozens of other companies we contacted offered similar responses.
The differences across states aren't surprising, since auto insurance is regulated at the state level. What many consumers find surprising, though, is that their credit history makes any difference at all in how much they pay for car insurance.
Regulators in several states have already decided that the practice is less than fair, and they prohibit or limit insurers' use of credit histories.
In Brake's case, the decisions she made to forgo credit cards and save for a car rather than finance one may be as consequential as another driver falling behind on a mortgage or racking up consumer debt.
That's especially true in her home state of Florida, where credit history plays a huge role in auto premiums.
As an example, a hypothetical 34-year-old man living in Miami's Little Havana neighborhood might pay about $3,000 a year to insure a Toyota RAV4, according to the Quadrant data. That's if he has excellent credit. If he has poor credit, the premium could be more than $7,000 a year.
Brake says the insurance companies she called finally did acknowledge that her credit history played a role in how much they'd quote her. But that's as far as their explanations went.
"It's our own recipe, and we don't even know the recipe was a lot of what people were telling me. So I was confused," Brake said. "They also are in the dark, and I was just trying to get my rate to an affordable place."
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Winners and Losers
Insurance companies and industry groups contacted by NPR universally defended the use of credit history to help set premiums, as they have since the practice started in the 1990s. They say it's a powerful predictor of whether a driver will have an insured loss — which costs the company and other consumers money, and helps prevent safe drivers from subsidizing less-safe drivers.
Still, to some consumer advocates, the predictive power of someone's credit history is beside the point.
"It really is a proxy for race and income," says Carmen Balber, executive director of Consumer Watchdog, a California advocacy group.
The group helped get credit information banned from insurance rates in that state decades ago.
"Credit scores are consistently lower for lower-income Americans, they're consistently lower for people of color. And that leads to an end result that is higher auto insurance premiums for lower-income people of color."
Balber also says using credit history to set premiums is just a way of selecting more lucrative, higher-income customers.
"Too often, in other states, consumers are paying more for their auto insurance not because they're bad drivers but because they have a lower credit score," she says, " And that's unfair and outrageous when consumers learn of it."
Gaby Peterson, an insurance agent in Oregon who's originally from Ecuador, sees the issue play out every day.
Peterson says many of her clients are recent immigrants from Venezuela and have difficulty navigating the U.S. credit system and establishing good credit.
She often has to quote them high premiums – sometimes $500 to $700 per month to drive an older, inexpensive car. Some go without insurance entirely.
"I think that it's not fair. I think that a lot of people that are out there are working really hard and working on their credit."
To her, using credit scores to set premiums, "is a way to segregate the communities through the property that you have or the money that you have – or to discriminate."
Accurate, but unfair?
Insurance companies maintain that using credit information helps them set accurate rates. Specifically, the industry uses a so-called "credit-based insurance score."
"What goes into the score is objectively confirmable data," says Tony Cotto with the National Association of Mutual Insurance Companies. "Things like your history of late payments, your bankruptcies, other adverse public records, and the proportions of loan amounts owed."
That was in 2021, when Cotto testified against a ban on the use of credit to set car insurance premiums before the Washington state legislature.
And in a recent interview with NPR, Cotto, who's counsel for federal and political affairs at the association, was singing the same tune.
When asked whether insurers have a moral obligation to step in when the industry's use of credit disproportionately affects non-white and lower-income drivers, he said, "When we talk about morality and fairness, a fair rate, in insurance, is an accurate rate."
Will Guzzardi, a Democratic lawmaker who represents mostly Latino Chicagoans in the Illinois state legislature, doesn't buy that.
He says he has been working on what he calls the "car insurance fairness issue" for about two years, including introducing a bill that would have required insurers to show that none of their practices negatively affect any group of policy holders based on their race, gender and other factors.
In Guzzardi's district in the northwestern part of the city, the difference in premiums for drivers with excellent credit and those with poor credit ranges from 50 percent to more than 200 percent, according to the Quadrant data.
"I think there's a really important distinction between accuracy and fairness. The insurance industry tends to erase that distinction," Guzzardi says.
For example, a higher-income driver who gets into a fender-bender might simply absorb the cost of the accident rather than file a claim, he says, but someone with less disposable income won't be able to.
In that case, "Someone's likelihood of filing a claim with their insurance company doesn't have to do with how safe a driver they are. It has to do with how wealthy they are — how much money they have on hand."
And, he says, even if credit history does predict claims, "Should we as policy makers — should that be our goal? Should it be determining what's best for the insurance company's bottom line, or determining what's fair for our constituents?"
Paying More Because You're Paying More
Susan Collins lives in Knoxville, Tenn., with her husband, a United Methodist pastor.
Collins and her husband, who is a cancer patient, moved to a new house when he was transferred to another church.
The move meant a financial squeeze - including a larger mortgage at a higher interest rate. There were also higher health care costs.
"We had to start paying a lot of money for medical costs," she says. "We did something I never had done before. I never charged groceries and I hadn't charged gas probably since our children were in diapers. And I started having to do that in order to pay for medicine."
She soon learned that insurers use consumers' detailed credit information, including the amount of outstanding debt, in setting premiums.
When her car insurance increased, she says, her insurance company "attributed it to our increased debt load."
The company also reminded her it was paying claims for natural disasters elsewhere.
"Do you know what it's like in the world?" an insurance company staffer asked her.
"I just remember her saying that and me thinking, 'I'm pretty sure I do, ma'am. I know what it's like in my world right now, and it's tight."
Questions Remain
Medical student Brake never did get to the bottom of how, exactly, her lack of credit history figures into her premiums. (As Cotto sees it, insurers would not punish her "thin" credit history, but wouldn't give her any discounts for good credit either.)
And she's ambivalent about the fairness of it all.
"I don't know what the right answer is," Brake says, "I see that it's complicated. I also see that it's possible for this to not be a consideration. I'd like to see credit be used less, and maybe there would be other factors that are considered instead."
In the meantime, with her insurance rates high and thoughts of applying for a mortgage someday, she says, "More and more I've been thinking about going for it and trying to establish credit."
In Washington state, where Cotto testified, the insurance industry managed to get a ban on credit-based insurance rates thrown out in court.
But insurers may have to sue again, as insurance commissioner Patty Kuderer says she'd like the state to continue to focus on the issue, and she's called for a formal study.
"When the industry talks about a correlation between increased claims and low credit scores, that is a true statement," Kuderer says, "But that's not really addressing the issue of what I, as the insurance commissioner, am statutorily charged with doing, which is looking to see if the rates are unfairly discriminatory."
NPR obtained auto insurance premium data from Quadrant Information Services. The company analyzes insurance companies' regulatory filings to determine how they assess drivers' risk – including the perceived risk posed by their credit history. Quadrant then standardizes that information to make estimates specific to particular insurers and ZIP Codes.
The approach has challenges, including the fact that the models behind a company's rate filings are proprietary, and that Quadrant's estimates might not reflect actual premiums or whether a policy will even be issued at a particular price in a particular place.
The data don't include every insurance company. In four states - Florida, New York, South Carolina and Wyoming – Quadrant provided less-detailed information for the GEICO, USAA and Progressive insurance companies.
NPR calculated differences between premium estimates across insurance companies, geographic areas and credit categories. Quadrant's data is widely used by insurers to understand their competitors and by academic, government and consumer-oriented researchers.
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