Most drivers know that tickets and accidents can raise their premium. Fewer know that the link between your credit score and car insurance can matter just as much in many states.
This guide explains how insurers use credit, which states limit the practice, and practical steps that may help you pay less.
Key takeaways
- In most states, insurers can use a credit-based insurance score as one factor in setting your rate.
- According to the NAIC, FICO estimates about 95% of auto insurers use these scores where state law allows.
- Several states ban or restrict this practice, including California, Hawaii, and Massachusetts.
- Improving your credit and comparing quotes may help lower your premium over time.
What is a credit-based insurance score?
A credit-based insurance score is a number built from parts of your credit report. Unlike a lending credit score, it is designed to predict how likely you are to file insurance claims.
According to the National Association of Insurance Commissioners (NAIC), these scores use certain elements of a person's credit history to predict the likelihood of an insurance loss. The NAIC also notes that FICO estimates about 95% of auto insurers use credit-based insurance scores in states where it is allowed.
Insurers that use these scores generally look at information such as:
- Your payment history
- How much debt you carry compared with your available credit
- The length of your credit history
- How often you apply for new credit
- The mix of credit accounts you have
Your income is not part of your credit report, so it is not part of these scores.
Why insurers use credit
Insurers say that, as a group, people with stronger credit histories tend to file fewer or less costly claims. That is why many companies treat credit as one rating factor among many, alongside your driving record, vehicle, location, and coverage choices.
The practice is debated. Some consumer groups argue it can fall more heavily on certain groups, which is one reason some states limit it.
States that limit the use of credit
Rules vary widely by state. According to the NAIC, California, Hawaii, Maryland, Massachusetts, Michigan, Nevada, Oregon, and Utah ban insurers from using credit-based insurance scores in certain ways, such as setting rates or deciding whether to offer or renew a policy. The details differ from state to state.
| State type | What it generally means for you |
|---|---|
| States that ban credit in auto rating (such as California, Hawaii, and Massachusetts) | Your credit should not affect your auto rate |
| States with partial limits | Credit may be used, but with restrictions |
| Most other states | Credit can be one of several rating factors |
Because laws change, check with your state insurance department for the current rules where you live.
How much can credit affect your rate?
There is no single answer. The impact depends on your insurer, your state, and the rest of your profile. In states that allow it, drivers with weaker credit-based insurance scores may pay noticeably more than drivers with strong scores, even with the same driving record.
That is one reason why comparing quotes matters. Each insurer weighs credit differently. A company that puts less weight on credit could offer you a better price.
Your rights under federal law
Under the federal Fair Credit Reporting Act, if an insurer takes an adverse action, such as charging you more, based on information in your credit report, it generally must tell you. The notice should explain how to get a free copy of the report it used and how to dispute errors.
You can also check your credit reports for free at AnnualCreditReport.com, the official site for free reports from the three national credit bureaus.
Common myths about credit and car insurance
There is a lot of confusion about this topic. Here are a few common misunderstandings.
Myth: Shopping for quotes will hurt my credit. Insurers that check credit for a quote typically use a soft inquiry. Soft inquiries do not lower your credit score, so you can usually compare quotes without worry.
Myth: Insurers see my income or bank balance. Your credit report does not include your income or how much money is in your bank account. Credit-based insurance scores are built from credit report information, not your paycheck.
Myth: Bad credit means I cannot get insurance. In states that allow insurers to use credit, weaker credit is more likely to affect your price than to block you from coverage entirely. Some insurers weigh it less than others.
Myth: My insurance score is the same as my lending score. They draw on the same credit report, but they are built for different purposes. A strong lending score usually goes along with a strong insurance score, but the two are not identical.
Myth: Credit is the biggest factor in my rate. Credit can matter, but it is one of many factors. Your driving record, the car you drive, where you live, and the coverage you choose all play major roles.
Steps that may help improve your insurance score
Building better credit takes time, but small habits add up:
- Pay every bill on time. Payment history is one of the most important parts of your credit.
- Lower your credit card balances. Using less of your available credit can help.
- Avoid opening many new accounts at once. Frequent applications can weigh on your score.
- Keep older accounts open when it makes sense, to preserve the length of your history.
- Check your reports for errors and dispute anything that is wrong.
Other ways to lower your premium now
You do not have to wait for your credit to improve to save money. Options that may help today include:
- Ask about discounts you might qualify for. See our list of car insurance discounts you might be missing.
- Try a usage-based program that prices based on how you drive. Learn more about usage-based car insurance.
- Raise your deductible if you can afford the out-of-pocket cost.
- Compare quotes, since some insurers rely on credit less than others.
For more ideas, read our guide on how to lower your car insurance premium.
Ask for a re-rate when your credit improves
If your credit has improved, do not assume your rate will drop on its own. Many insurers re-check credit at renewal, but some only do so when asked. Call your insurer and ask whether they will re-run your insurance score. You can also request new quotes to see whether another insurer offers a better price.
Compare quotes with confidence
Since insurers treat credit differently, shopping around is one of the best ways to find a fair rate. Quote4Us connects you with licensed insurance agencies in our network that can help you compare options. We are not an insurance company and do not sell policies ourselves.
Get your free auto insurance quote to see what options may be available to you.
This article is for general information only and isn't legal or insurance advice. Coverage and rules vary by state and insurer.
Frequently asked questions
Generally, no. Insurers that check credit for quotes typically use a soft inquiry, which does not lower your credit score and is not visible to lenders. That means you can usually compare car insurance quotes without worrying about your score. If you want to be sure, ask the agent or insurer what type of credit check they use.
It varies. Many insurers re-check credit at renewal or when you request a new quote, and some only do so when you ask. Improvements to your credit may take months to show up in your report. Once your credit improves, it may be worth asking your insurer to re-rate your policy or comparing new quotes.
Rules depend on your state. Some states limit or ban the use of credit in insurance decisions, and some prohibit using credit as the only reason to deny, cancel, or not renew a policy. In states that allow it, poor credit is more likely to raise your price than to block coverage entirely. Contact your state insurance department for specifics.