Does your credit score affect your insurance rates?

Does your credit score affect car insurance? |

Does your credit score affect your insurance rates?

There are many ways to lower your auto insurance premiums: good driving behavior, purchasing a safer vehicle and bundling home and auto policies are just a few examples.

But not all drivers realize the possibility of their credit scores affecting insurance premiums.

As if there weren’t already enough reasons to improve your credit, doing so may also help lower your car insurance premiums.

What factors affect my auto insurance premiums?

The factors that affect auto insurance can vary by location and insurance company. However, there are a few that tend to be universal. Where and how you use your car plays a big role in the cost of insurance, as does the vehicle type.

Cars that have a higher value are more expensive to insure, and vehicles that are left on the street will cost more than those parked in a secured garage.

Having a longer daily commute will also send premiums upward as increased mileage means a higher chance of getting in an accident.

Auto insurers also use your details to gauge your risk as a driver. Your age and gender are both factors; younger drivers and males are more ly to have a higher rate when all other variables are equal.

Driving history plays a key part as those with infractions are more ly to repeat the behavior. While a single speeding ticket might not be enough to send your premiums skyrocketing, a DUI is a much more serious offense that insurers will frown upon.

In most states, your credit score can be taken into consideration by auto insurance companies as well.

Finally, the type of insurance you purchase and how much coverage you buy is the most direct way to control your insurance premium.

Choosing a plan with a lower coverage limit and a higher deductible will lower your monthly bill, but there’s a huge trade-off.

Sacrificing coverage for the sake of lower premiums is generally considered a poor strategy as you’ll be left high and dry financially in the event of an accident.

Overall, some combination of these factors will typically be used to determine your auto insurance premiums:

  • Vehicle make and model
  • Location
  • Number of miles driven
  • Age and gender
  • Driving history
  • Credit history
  • Type and amount of insurance

Does my credit score affect car insurance?

Credit tierFull coverageMinimum coverage
Good credit$1,555$545
Average credit$2,076$700
Poor credit$2,424$1,008

Average rate impact by credit score

As you can see from the findings on how credit score affects car insurance, having good credit can result in vastly cheaper rates, regardless of the level of car insurance you choose to buy.

The difference between good credit and poor credit minimum coverage is most significant; a driver with poor credit will pay almost double in premiums each year compared to someone with good credit.


Paying for full coverage when you have good credit will cost you roughly $130 per month, or $,1,555 a year. If you have average credit, the same full coverage costs around $173 per month, on average. And drivers with poor credit will pay, on average, approximately $202 per month in premiums. these numbers, improving your credit score from average to good could save you around $516 per year.

In almost every state, your credit score can be used as a factor to determine your car insurance rate – and it probably will. According to NAIC, 95% of auto insurers look at your credit report in the states where this is allowed. But how exactly does credit score affect car insurance rates? This depends on a few details your location and the individual company.

How does your credit score affect your car insurance?

If you’ve purchased a home or vehicle in the past, you may have already gone through a credit check process to determine your loan rates.

The process that insurance companies use to evaluate your credit health is slightly different, according to Experian. Auto insurers use a different version of your credit score that is more accurate at predicting drivers’ risk.

Still, the same basic principle applies, the better your credit score, the more of a positive impact it will have on your insurance rates.

There’s one other key difference to know about. When lenders check your credit, this inquiry shows up on your credit report and results in a nominal deduction from your score. Thankfully, the same penalty doesn’t apply when an insurance company looks at your credit score. This means getting a quote for a new policy won’t negatively impact your credit. 

Why do insurance providers use your credit score?

Getting car insurance doesn’t require a loan, so why should an insurer care about your credit? To put it simply, your credit score is an indicator of your overall responsibility as a driver. Statistics show that drivers with good credit are less ly to get in an accident than those with poor credit.

“Insurers use a credit-based insurance score to understand how ly you are to have an insurance loss and file a claim,” says Laura Adams, an insurance and financial advisor. “The better your credit rating, the less risky you appear to an insurer, and the lower your premium will be.”

Is credit score a factor in all states?

In 47 states and the District of Columbia, the law allows insurers to access your credit score for the purpose of determining premiums. This doesn’t mean that insurance companies have to use the data, although most do.

“Many drivers aren’t aware that their credit affects their car insurance rates in most states,” says Adams. “Unless you live in California, Hawaii or Massachusetts, where insurers are prohibited from using credit as an auto rating factor, having good credit saves money on your premiums.”

Unless you live in one of these three states, it’s safe to assume that your credit score will be accessed by insurers when you request a quote.

If your credit score changes, should you shop for new rates?

Everyone’s credit score fluctuates throughout their lifetime.

If you first signed up for auto insurance when your score had dipped and have since made improvements to your financial situation, it might be worth shopping around for a better rate.

Since each insurer weighs factors differently, it’s entirely possible that you’ll get a lower quote from another company that places more emphasis on credit health.

“If your credit has improved over time, be sure to shop auto policies and compare rates,” says Adams. “If you live in a state where credit is an insurance factor, having better credit means you can probably find a better deal.”

The takeaway

  • Your credit score can be used as a determining factor in setting your auto insurance rate in most states.
  • Insurance companies are willing to give better rates to drivers with a high credit score because they’re statistically less ly to get in an accident or file a claim.
  • Shopping around for quotes is the best way to get a lower insurance rate after improving your credit over time.

Unless you live in California, Hawaii or Massachusetts, you can be certain that your credit score was one of many factors used to establish your current auto insurance rate.

If you’ve seen improvements to your score, there’s no harm in shopping around for auto insurance quotes, especially if it’s been a while since the last time you compared rates.


Does Getting Insurance Quotes Affect Your Credit Score?

Does your credit score affect your insurance rates?

Car insurance quotes and credit history are connected, but not how you might expect.

There’s no “hard credit pull” for auto insurance quotes. That means that your credit score won’t be temporarily lowered when you shop for insurance the way it is when you apply for credit.

>>MORE: Compare car insurance rates

While insurance companies do consider your credit history when setting rates in most states, they don’t check the same information lenders and credit card issuers do. Instead, they use credit-based insurance scores similar information from your credit report.

The credit-based insurance score

Credit-based insurance scores are intended to predict how ly you are to file a claim. They're calculated from factors in your credit report, such as:

  • How recently you have applied for credit, such as a loan or credit card (not insurance).
  • Your history of making payments on time.
  • The portion of your credit card limits you actually use, expressed as a percentage.
  • The number, types and ages of loan and credit accounts you have.
  • The amount of debt you have.
  • Whether you have accounts in collections, or past foreclosures and/or bankruptcies.

Traditional credit scores, such as FICO scores and VantageScores, use similar information to estimate how ly you are to pay your bills on time. When you apply for credit or loans, card issuers and lenders use traditional credit scores to determine credit limits, interest rates and loan terms.

Since filing claims and paying bills on time are two different financial behaviors, the two types of scores are determined using formulas that weight the information in your credit report differently. Insurers also use separate insurance-based scores for home and auto insurance.

Car insurance quotes and your credit score

Insurers often ask for the approximate credit tier of your regular credit score when you get a quote — except in California, Hawaii and Massachusetts, where the use of credit to set rates is banned.

You’re not expected to know your credit-based insurance score — most people don’t — so this is just a way to get car insurance quotes quickly.

In this scenario, the company uses your reported credit tier to estimate your insurance premium before you’ve agreed to buy a policy.

Once you apply for coverage, you’ll authorize the insurer to obtain your credit information and other information that can affect your final price. So, if you give the wrong tier, your auto insurance quote won’t be accurate.

Alternatively, some insurers or agents may ask for your authorization to view credit information during the insurance quote process so that the price estimate is more reliable.

In either case, it won’t be considered a hard credit inquiry.

» MORE: What is a car insurance quote?

The premium you pay for poor credit

NerdWallet analyzed rates for 40-year-old male and female drivers with clean driving records in both the “poor” and “good” credit tiers as reported to an insurer as you would while getting an auto insurance quote. On average, those in the poor credit group paid 77% more in premiums than those with credit in the good tier. Here’s the breakdown by state.

Average annual rate for drivers with good creditAverage annual rate for drivers with poor credit

» MORE: How much is car insurance?

Why insurance companies care about your credit history

Insurance scores were introduced in the 1990s by FICO, a data analytics company best known for credit scores.

FICO estimates that 95% of auto insurers and 85% of home insurers use insurance scores to set premiums in states where the practice is permitted.

The scores were found to accurately predict risk, or lihood of filing a claim, by the Federal Trade Commission, according to a 2007 report.

In most states, insurance scores can be used because companies need only correlate poor insurance scores with more frequent or costlier claims. Typically, in states where the practice is permitted, scores can be used to set rates, but not as the sole reason for increasing premiums or denying or canceling coverage.


Does your credit score affect your insurance rates?

Does your credit score affect your insurance rates?

Credit scores impact the interest rates that consumers receive for various types of loans, including credit cards, mortgages, student loans and even auto insurance rates. A higher credit score means an individual will receive a lower interest rate, saving them thousands of dollars over several years.

If you're looking to save some extra money on insurance — whether it's home insurance or car insurance — Credible has you covered. Credible's online marketplace allows you to view your insurance options easily and determine which companies offer the best rates and deals.

But it's always a good idea to know your personal finance inside and out, particularly your credit score, before applying or switching insurance policies. Here's what you need to know:

Why does a credit score affect insurance?

Lenders use credit scores to determine the ability of a consumer to pay back a loan on time, such as mortgage refinances, student loan refinances and personal loans.

“Credit scores are a way for lenders to determine risk before approving a loan, such as a credit card, mortgage or refinance,” said Leslie Tayne, a Melville, N.Y. attorney specializing in debt relief. “The higher the credit score, the lower the risk to lenders that consumers will default on their loans.”

FICO scores are one of the most well-known, range from 300 to 850 and are credit reports.

Underwriting criteria for loan approval and rates vary from lender to lender, but poor credit is typically a score lower than 580, she said. A score of 580-669 is considered fair, 670-739 is good and a score of 740 or higher is typically considered excellent.


How much does credit score affect insurance rates?

Insurance companies use a slightly different method to determine the risk level of a consumer for auto, renters and homeowners insurance policies.

1. How insurance companies reference credit scores

Insurance companies use credit scores as a factor when determining premiums. States that prohibit this practice for auto insurance include Massachusetts, Hawaii and California, Tayne said. Insurance companies use credit scores to get an idea of the risk involved for the company.

“Insurance companies want to reduce the chances of a policyholder missing payments,” she said.


2. How insurance companies use credit-based insurance scores

Most insurance companies use credit-based insurance scores to evaluate how ly a policyholder is to have a claim, Laura Adams, a Vero Beach, Fla.-based consumer advocate, said. lenders, insurers use credit as a factor when setting rates in states that allow it.

Insurance companies obtain credit scores both when you purchase a new policy and when your policy comes up for renewal, said Jackie Boies, a senior director of housing and bankruptcy services for Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization.

Head to Credible to get a better understanding of the different types of home insurance coverage and what the coverage amount is. Click on Credible's home insurance partners to get a free home insurance quote.


3. How credit-based insurance scores are different than the traditional ones

Credit-based insurance scores help insurers get a general idea of the lihood that a claim will be filed.

“This type of score can help minimize the risk that the individual will cost the company more in filed claims than the person is paying in premiums,” Tayne said. “Insurance companies want to maximize profit and take on as little risk as possible.”

If you have insurance and want to lower costs or if you're looking to switch car insurance companies, then head to Credible to explore pricing and compare quotes in one spot.


4. How these types of scores affect insurance premiums

Lower scores can result in higher premiums. Consumers should keep in mind that other factors are taken into consideration, such as previously filed claims, location and age of the vehicle and home, Tayne said.

Credit can significantly affect premiums, but it could mean that a driver with poor credit pays double or triple for auto insurance than a similar driver with excellent credit, Adams said.

A person’s credit-based insurance score is another reason a consumer should maintain good credit and check a credit report annually for errors, Boies said. One credit reporting error could cause a jump in your premium when your policy renews. Get your free credit report at and dispute any errors.

Consumers can improve their credit scores by paying their bills on time, not taking out too much credit and not using over 30% of the utilization ratio of their credit cards. A higher credit score gives you lower rates for all your insurance policies.

“Good or excellent scores indicate that you've previously been responsible with credit by making payments on time and not borrowing too much,” Adams said. “In general, those with higher scores qualify for the most competitive interest rates and repayment terms.”


Credit score ranges

Credit score ranges vary depending on the company and each one uses an algorithm to evaluate a borrower your credit reports' information at the nationwide credit bureaus: Equifax, Experian and TransUnion, Adams said.

Here are ranges for some other popular credit scores, Adams said.

  • FICO Mortgage Score: 300 to 850
  • FICO Auto Score: 250 to 900
  • FICO Bankcard Score: 250 to 900
  • VantageScore: 501 to 990
  • TransUnion: 300 to 850

Check your credit score on a regular basis and participate in credit monitoring by visiting Credible today.


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