Drivers across Tennessee with poor credit are paying 86% more for car insurance than those with good credit — an average gap of roughly $1,600 a year — according to a LendingTree analysis. For Frayser resident Joanne Robinson, that math does not sit right. “That's ridiculous,” Robinson said, arguing that insurance premiums should be based on driving records rather than what shows up on a credit report.
The 86% Tennessee gap was reported by FOX13 Memphis, which noted that neighboring states show similar patterns: Mississippi drivers with poor credit pay almost 83% more, while Arkansas drivers with poor credit pay 76% more. Nationally, drivers with poor credit pay an average of $345 a month, or $4,140 a year, for full coverage — a 95% jump over the $177 monthly rate paid by drivers with good credit, according to LendingTree.
Rob Bhatt, an insurance analyst at LendingTree, said bad credit already makes carrying insurance a hardship, and the extra premiums only pile onto that burden, per the same LendingTree data. Michael DeLong, a research and advocacy associate for the Consumer Federation of America, put it more bluntly: he said insurance companies use credit scores to weed out disliked consumers and reward favored ones, and argued that auto insurance premiums ought to be based on driving records rather than credit scores.
Why Insurers Say Credit Predicts Risk
The industry's defense of credit-based scoring rests on decades of actuarial data. Credit-based insurance scores were developed by the Fair Isaac Corporation in the early 1990s, and FICO estimates that roughly 95% of U.S. auto insurers use them in states where the practice is legal, according to the National Association of Insurance Commissioners. Unlike a standard credit score, which predicts loan default risk, these scores are built specifically to project the likelihood of future insurance claims.
Consumer advocates dispute that rationale. A national analysis by the Consumer Federation of America found that drivers with clean driving records but poor credit pay an average of 115% more for state-mandated auto coverage than drivers with excellent credit and identical driving histories. The group argues credit-based pricing functions as a proxy for socioeconomic status and disproportionately hits lower-income households.
Tennessee's Legal Guardrails on Credit Scoring
Tennessee law does not ban the practice, but it does put limits on it. Under Tennessee Code § 56-5-202, insurers may use credit-based insurance scores in underwriting, but they cannot take adverse action based on credit alone, and they must re-evaluate a policyholder's credit report at least once every 36 months, according to Justia Law. Insurers must also notify policyholders annually of their right to request an updated insurance score check before renewal.
State regulations also require carriers to make reasonable exceptions to their underwriting rules when a policyholder's credit score has been damaged by extraordinary life events, such as a severe medical emergency, job loss, or divorce, according to Big I Tennessee. The trade association advises drivers hit by those circumstances to submit formal hardship exception requests to offset credit-driven rate hikes. Four states — California, Hawaii, Massachusetts, and Michigan — have gone further and fully banned insurers from using credit scores or histories to set auto premiums at all, according to MoneyGeek. California's ban dates back to Proposition 103 in 1988, while Michigan barred the practice in 2020 as part of a broader no-fault insurance overhaul.
A Compounding Uninsured Driver Problem
Consumer advocates worry that rising premiums are pushing more Tennessee families with poor credit to drop coverage altogether, even after registering their vehicles. The Insurance Information Institute found that one in five Tennessee drivers lacked insurance in 2022, and the state's uninsured rate ranked fifth-highest in the nation, with 20.9% of motorists uninsured that year and 21.3% in 2023, according to Insurance Research Council data reported by WBIR. Local county clerks have reported that surging costs lead residents to cancel policies shortly after registering their cars, leaving legally registered vehicles on the road without coverage.
Geography adds another layer to the burden. Memphis drivers pay an average of nearly $2,950 a year for full coverage — almost $830 more than the statewide average of $2,112 — according to an analysis by SaveMaxAuto of NAIC and Experian data. For Shelby County drivers already facing a credit penalty, that urban pricing gap compounds an already steep bill.
What Drivers Can Actually Do
There is at least one piece of good news for drivers trying to shop around: requesting quotes will not hurt their credit. When insurers check a driver's credit score for rate calculations, they perform what's known as a soft pull, meaning the inquiry does not register as a hard credit check or lower the consumer's score, according to LendingTree.
Tennessee's Financial Responsibility Law still requires anyone carrying traditional auto insurance to maintain minimum liability limits of $25,000 per person and $50,000 per accident for bodily injury, plus $15,000 for property damage, according to Sentinel Casualty Insurance. Failing to show proof of that coverage can trigger penalties and even registration revocation. For now, whether Tennessee lawmakers will follow the lead of states that have banned credit-based pricing remains an open question, even as a similar push advances in Oklahoma.
