Most people know that credit scores matter when applying for loans or credit cards — but did you know they can also impact your auto insurance rates? In many parts of the U.S., your credit score is a factor that insurance companies use to determine how much you’ll pay for coverage. This may come as a surprise, but it can make a big difference in your monthly premium.
Let’s break down how this works and what you can do about it.
Why Do Insurers Look at Credit Scores?
Insurance companies use a version of your credit history called a credit-based insurance score. It’s not exactly the same as your regular FICO score, but it’s closely related. This score helps insurers predict how likely you are to file a claim. Statistically, people with lower credit scores are more likely to file claims, miss payments, or be involved in accidents.
As a result, if you have poor or fair credit, you may be seen as a higher risk — even if you’ve never had an accident. On the flip side, people with excellent credit usually qualify for lower auto insurance rates.
How Big Is the Difference in Cost?
The difference can be significant. According to industry studies, a driver with excellent credit might pay hundreds of dollars less per year than someone with poor credit — even if both have the same driving record. In fact, in some states, a bad credit score can increase your premium more than a speeding ticket or minor accident.
Is This Practice Legal?
In most U.S. states, yes. However, there are a few exceptions:
- California
- Hawaii
- Massachusetts
- Michigan
These states prohibit or restrict the use of credit scores when determining auto insurance rates. If you live in one of them, insurers must rely on other factors, like driving history, age, and location.
How to Improve Your Credit and Lower Your Rates
If your credit score isn’t where you want it to be, don’t worry — there are steps you can take that may lead to lower auto insurance costs over time:
- Pay Bills on Time: Your payment history is the biggest factor in your credit score.
- Reduce Credit Card Balances: Lowering your credit utilization can give your score a quick boost.
- Avoid Opening Too Many Accounts at Once: Each application results in a hard inquiry, which can lower your score temporarily.
- Check Your Credit Reports for Errors: You’re entitled to a free report annually from each of the three major bureaus at AnnualCreditReport.com.
After improving your credit, shop around and ask insurers to re-evaluate your rate.
Final Thoughts
Your credit score may seem unrelated to your driving, but in most states, it plays a major role in how much you pay for auto insurance. The better your credit, the more you can save — sometimes by a lot. Understanding this connection gives you one more tool to reduce your costs and get the best deal possible on your coverage.
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Most people know that credit scores matter when applying for loans or credit cards — but did you know they can also impact your auto insurance rates? In many parts of the U.S., your credit score is a factor that insurance companies use to determine how much you’ll pay for coverage. This may come as a surprise, but it can make a big difference in your monthly premium.
Let’s break down how this works and what you can do about it.
Why Do Insurers Look at Credit Scores?
Insurance companies use a version of your credit history called a credit-based insurance score. It’s not exactly the same as your regular FICO score, but it’s closely related. This score helps insurers predict how likely you are to file a claim. Statistically, people with lower credit scores are more likely to file claims, miss payments, or be involved in accidents.
As a result, if you have poor or fair credit, you may be seen as a higher risk — even if you’ve never had an accident. On the flip side, people with excellent credit usually qualify for lower auto insurance rates.
How Big Is the Difference in Cost?
The difference can be significant. According to industry studies, a driver with excellent credit might pay hundreds of dollars less per year than someone with poor credit — even if both have the same driving record. In fact, in some states, a bad credit score can increase your premium more than a speeding ticket or minor accident.
Is This Practice Legal?
In most U.S. states, yes. However, there are a few exceptions:
- California
- Hawaii
- Massachusetts
- Michigan
These states prohibit or restrict the use of credit scores when determining auto insurance rates. If you live in one of them, insurers must rely on other factors, like driving history, age, and location.
How to Improve Your Credit and Lower Your Rates
If your credit score isn’t where you want it to be, don’t worry — there are steps you can take that may lead to lower auto insurance costs over time:
- Pay Bills on Time: Your payment history is the biggest factor in your credit score.
- Reduce Credit Card Balances: Lowering your credit utilization can give your score a quick boost.
- Avoid Opening Too Many Accounts at Once: Each application results in a hard inquiry, which can lower your score temporarily.
- Check Your Credit Reports for Errors: You’re entitled to a free report annually from each of the three major bureaus at AnnualCreditReport.com.
After improving your credit, shop around and ask insurers to re-evaluate your rate.
Final Thoughts
Your credit score may seem unrelated to your driving, but in most states, it plays a major role in how much you pay for auto insurance. The better your credit, the more you can save — sometimes by a lot. Understanding this connection gives you one more tool to reduce your costs and get the best deal possible on your coverage.
