Yes, your credit score can significantly impact your car insurance premiums. Most auto insurers use a credit-based insurance score, derived from your credit history, as one factor to set rates.
Drivers with lower credit scores are statistically more likely to file insurance claims, so insurers often charge them higher rates to offset this risk. In fact, on average, a driver with poor credit pays about 104% more for full coverage car insurance than a similar driver with excellent credit.
(If your credit history is hurting your insurance rates, contact Insure on the Spot at 773-202-5060 to explore affordable coverage options.)
What Is a Credit-Based Insurance Score vs. a Regular Credit Score?
A credit-based insurance score is similar to your regular credit score, but it’s tailored for insurance risk. Both are calculated from information in your credit report, like payment history and debt, but an insurance score weighs factors a bit differently and does not include personal details such as your income, age, or ethnicity. Insurers use this specialized score to predict how likely you are to file a claim, not to judge your ability to repay a loan.
How It Works:
- Payment History (40%) – Whether you pay bills on time. This is important because insurers want to know if you’ll pay your premiums promptly.
- Outstanding Debt (30%) – How much debt you owe across loans and credit cards.
- Length of Credit History (15%) – The age of your credit accounts.
- Pursuit of New Credit (10%) – Recent applications for credit (too many can be a red flag).
- Credit Mix (5%) – The variety of credit types you have (cards, auto loans, mortgage, etc.).
While your regular FICO credit score looks at similar factors, it’s meant for lenders and predicts your ability to repay loans. The insurance score is only used for underwriting and pricing, without considering personal factors like race, gender, or income.
Why Do Insurance Companies Use Credit Scores for Car Insurance?
Insurance companies use credit scores as a risk predictor. Numerous studies have found a strong correlation between lower credit scores and more frequent insurance claims. In other words, drivers with poor credit file claims more often (and for larger losses) than drivers with excellent credit. This isn’t about the ability to pay premiums, but about driving risk and claim behavior.
Industry Research:
- The Insurance Information Institute found that drivers with worse credit-based insurance scores are more likely to file claims.
- The Federal Trade Commission (FTC) has conducted studies confirming that credit-based insurance scores are effective predictors of risk.
From an insurer’s perspective, credit history adds another layer to assessing risk. Drivers with poor credit scores tend to be higher-risk customers, and as a result, insurers charge higher premiums to offset the risk. Conversely, good-credit drivers often receive discounts as statistically safer bets.
How Much Can Poor Credit Increase Your Insurance Rates?
Having a poor credit score can dramatically raise your car insurance costs. While the exact impact varies by state and insurer, the difference between excellent and poor credit can often be hundreds or even thousands of dollars per year in premiums.
For example, a national analysis found that drivers with poor credit pay about double what drivers with excellent credit pay, on average. In raw numbers, an excellent-credit driver might pay around $2,300 per year for full coverage, whereas a similar driver with a poor credit score pays roughly $4,700 per year for the same coverage. That’s about a 104% increase in cost purely due to credit rating.
Credit Impact Example (Full-Coverage Policy):
| Credit Level | Approx. Annual Premium (Full Coverage) |
| Excellent (800+) | $2,300 |
| Good (670–799) | $2,680 |
| Average (580–669) | $2,926 |
| Poor (below 580) | $4,695 |
As shown, a drop from “good” credit to “poor” credit can raise a $1,500 annual insurance bill to nearly $3,000 – a huge difference. Keep in mind this credit effect is in addition to other factors that influence your rate (driving history, age, location, vehicle, etc.).
Do All Car Insurance Companies Check Your Credit?
Yes, in most states, nearly all major insurers use credit information to some extent when pricing policies. Over 92% of U.S. auto insurers factor in credit-based insurance scores in states where it’s permitted. Around 95% of auto insurers use credit scoring as part of their underwriting process.
However, credit is never the sole factor in determining your rate. Insurers also consider your driving record, claims history, vehicle type, location, and other factors. While credit helps assign you to a risk tier, it doesn’t override factors like a DUI on your record or owning a high-risk vehicle.
Which States Don’t Allow Credit Scores for Insurance Rates?
A few states prohibit or strictly limit the use of credit scores in auto insurance pricing. These states include:
- California
- Hawaii
- Massachusetts
- Michigan
Several other states, like Maryland, Oregon, and Utah, have restrictions on how insurers can use credit. In Illinois, credit-based insurance scores are used to help set rates, so it’s important to maintain good credit to get the best rates.
How Can You Improve Your Credit to Get Lower Insurance Rates?
Improving your credit can lead to lower car insurance premiums over time. Here are some actionable steps:
- Pay Your Bills on Time: Payment history is the most important factor for both credit and insurance scores. Set up automatic payments or reminders to stay on track.
- Keep Balances Low Relative to Limits: Aim to use no more than 30% of your available credit.
- Limit New Credit Inquiries: Each new application can ding your score, so apply for credit sparingly.
- Build a Longer Credit History: Avoid closing old accounts. The longer your credit history, the better.
- Check Your Credit Reports for Errors: Dispute inaccuracies that can lower your score.
- Communicate Extraordinary Circumstances: If your credit suffered due to major life events, inform your insurer for potential relief.
- Shop Around for Quotes: Different insurers weigh credit differently. Compare quotes to find the best rates for your credit score.
Improving your credit can take time, but focusing on these strategies can lead to significant savings on your car insurance over time.
Frequently Asked Questions (FAQs)
Q: Can I get car insurance with a 500 credit score?
A: Yes, you can still get auto insurance with a credit score around 500, but you will likely pay much higher rates. Insurers cannot refuse coverage solely due to a low credit score, but they will charge higher premiums for drivers with poor credit.
Q: How much does a low credit score affect car insurance?
A: A low credit score can increase your car insurance premiums by 20% to over 100%. On average, drivers with poor credit pay about 104% more for full coverage compared to those with excellent credit.
Q: Does getting a car insurance quote affect my credit score?
A: No, shopping for car insurance will not hurt your credit score. Insurers typically use a soft inquiry to check your credit, which does not impact your score.
Q: Which states don’t allow credit-based insurance scoring?
A: California, Hawaii, Massachusetts, and Michigan prohibit insurers from using credit information for auto insurance pricing. Some other states have restrictions, such as Maryland and Oregon.
Q: What credit score is considered “good” for car insurance?
A: A “good” credit score is typically in the range of 670–739 FICO. Drivers with good credit generally receive favorable insurance rates.
Get a Quote Today!
If your credit is affecting your car insurance rates, Insure on the Spot can help you find more affordable coverage options. Call 773-202-5060 or get a free quote online today to see how much you could save!