Does Your Credit Score Affect Car Insurance Rates? What You Need to Know

If you’re shopping for auto insurance, you may know that factors like the length of your driving history, claims history, driving record, and age can all play a role in what you pay for car insurance. But a not-so-obvious factor? Your credit score. Depending on your state, an insurer may look at your credit information when calculating your auto insurance rate . In this guide, we’ll look at credit scores and show how they may affect premiums. To start, let’s look at the relationship between credit and car insurance.

The following information is meant to provide helpful tips. Reviewing a policy with the respective insurance provider thoroughly before purchasing.

What Does Credit Have to Do with Car Insurance?

While you may not think your credit history plays a role in determining your car insurance rate, car insurance companies don’t see it that way. That’s because insurers are looking at the statistical likelihood of you paying your premiums on time. The more credit-worthy you are, the more likely you are to pay on time and not get behind on payments. However, if you don’t have good credit, the insurance company is taking on more of a risk that you will not pay what you owe them on time.

Insurance companies utilize something called a credit-based insurance score to help them determine your premiums. This number is not your credit score. A credit score, also known as a FICO® score, is a calculation that comes from the information in your credit report. 

However, companies use many of the same factors to determine your credit-based insurance score as they do to determine your regular credit score. Each insurance company relies on a slightly different calculation model to determine your credit-based insurance score, which means your score may differ from one insurer to another. It’s also important to understand that this score is just one of the factors used to set your premium. Other factors in auto insurance include your ZIP code, driving history, vehicle age, make, and model, and the number of miles you drive annually. 

How Insurers Use Credit Scores in Pricing

As you’ve seen, credit scores and credit-based insurance scores are different metrics. While the importance insurers place on the following factors varies, most credit-based insurance scores use these factors: 

• Payment history
• Outstanding debt
• Credit history length
• Pursuit of new credit
• Credit mix (the types of credit you have, including auto loans, credit cards, and home loans)

Research indicates that a person's credit-based insurance score can help predict the likelihood of an insurance claim. Those with higher scores generally have fewer accidents, while those with lower scores tend to file more claims.

It’s important to understand that when insurers evaluate these numbers, they do not see your full credit report but rather a summary of your credit that appears on the credit-based insurance score. An underwriter then assesses this risk along with other factors, and you are ultimately assigned a price for your insurance based on your risk factors.

State Rules: Where Credit Use is Limited or Banned 

Each state has its own regulations regarding how auto insurance companies can use credit when determining premiums. Some states have enacted laws that limit or prohibit the use of credit scores in auto insurance pricing. Currently, the following states have either banned or restricted the use of credit scores for setting insurance policy premiums: California, Hawaii, Maryland, Michigan, and Massachusetts. Additionally, Oregon and Utah have regulations that prohibit the use of credit history information in specific situations. Before comparing quotes for auto insurance, you should verify the rules around credit scores and insurance premiums in your state.

How Much Credit Can Affect Premiums

If you live in a state where it is legal to use credit scores, your score can affect your costs. In extreme cases, a driver with poor credit might pay up to 4 times as much as someone with excellent credit for car insurance. On average, drivers with poor credit typically pay double than those with excellent credit.

Of course, many factors can influence your premium. The ZIP code or state where you mainly drive can impact your rate. Car insurance premiums also differ between insurance companies, as each insurer weighs your credit differently. This variation means comparing quotes from different providers can help you find significant savings.

Keep in mind that poor credit can substantially increase costs, so even a small improvement in your credit score may help you lower your monthly payments.

How to Find Out if Credit Affects Your Policy

If you’re uncertain whether your credit score or a credit-based insurance score is impacting you, you can find out. Here are some questions to ask your insurance company or insurance agent.
⁠Do you use credit scores in pricing?

Which credit bureau do you use?

Can you tell me my insurance score and the factors affecting it?

How often do you update or review this score?

Extraordinary life circumstances may also affect your credit score. However, insurance companies cannot charge you more or refuse to insure you if your credit score decline was a result of the following events:
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• A major illness or injury

• The death of a spouse, child, or parent

• Temporary job loss

• A recent divorce

• Identity theft

If your credit was affected by these protected events, you can ask the insurance company to make an exception. And, they must tell you within 30 days if your credit report is leading them to deny you insurance coverage or charge you more.

If your credit is affecting your policy, there are a few steps you can take to improve your credit-based insurance score.

Steps to Improve or Protect Your Credit-Based Insurance Score

Because your credit-based insurance score is tied to your credit history, improving it is very similar to improving your overall credit score. Here’s what you can do to improve these scores:
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Pay bills on time and keep balances low: Late payments and high credit card utilization can negatively impact your credit. Therefore, it’s essential to pay your bills on time and to use only a small percentage of your available credit.

Avoid frequent new credit applications: Applying for several new lines of credit from lenders in a short period can indicate financial instability. And, these credit checks, known as hard inquiries, can affect your credit-based insurance score. Therefore, try to avoid applying for multiple credit lines simultaneously.

Monitor credit reports for errors and disputes: Keeping an eye on your reports to ensure that they are accurate can also help you protect your credit score.

Keep older credit lines open to build the length of your history: One factor in creditworthiness is the length of your credit history. That’s why it’s vital to keep older lines of credit open. 

Check your own credit regularly: Federal law allows you to get a free copy of your credit report from each of the credit bureaus (Equifax, Experian, and TransUnion) once every 12 months. Therefore, you can examine your credit by requesting these reports from  AnnualCreditReport.com  

How to Shop for Car Insurance When Credit is a Factor

If you live in a state where credit is a factor in the price you’ll pay for car insurance, it’s even more important to shop around and compare car insurance quotes from a variety of insurance companies. Because companies weigh credit differently, the price you’ll pay can vary based on the company’s factoring system. Using a comparison tool like  Protect.com can help you see the difference between a variety of reputable insurance carriers.

Another way to save money on car insurance is to review all of the possible discounts you may be eligible for. From bundling home insurance and auto insurance together to safe driver discounts to pay-in-full discounts, there are many opportunities to save.

When you’re ready to compare quotes, it’s important to have all of your information on hand. The more accurate this information is, the more accurate the quote will be. Here’s what you’ll want to have:
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Driver’s license numbers

Vehicle details, including the VIN, current mileage, and any safety features

Address and garaging location

Driving history for all drivers on the policy

Desired coverage types and limits

Current policy declarations page, to cross-reference

Your credit status or recent report

Once you have all this information, you can compare quotes from multiple insurers by reaching out to them individually, using an insurance broker, or visiting  Protect.com to obtain coverage estimates.

As you’ve learned, your credit can affect the rate you pay for auto insurance in many states. By knowing your credit, working to improve it, and shopping around for insurance providers, you can save money while staying protected on the road.

Ready to work with a comparison tool that can help you save? Protect.com shops the top insurance providers for you with just a few clicks. Our tool helps you quickly compare rates for car insurance, health insurance, and home insurance – all in one place. Get started to see how much you can save today! 

Footer:This is educational content, not a policy offer. Always speak with a licensed insurance provider before purchasing or making changes to your coverage.