When most people think about their credit score, they associate it with loans, credit cards, or buying a house. But did you know that your credit score can also impact how much you pay for auto insurance? In the U.S., many insurance companies use credit-based insurance scores to help determine your premium—even if you’ve never missed a payment in your life.
Understanding how your credit score influences your auto insurance rate can help you take control of your finances and potentially save hundreds of dollars a year.
Why Do Insurers Use Credit Scores?
Insurance providers argue that there’s a strong statistical link between credit behavior and the likelihood of filing a claim. Studies have shown that individuals with lower credit scores tend to file more claims, and those claims tend to be more expensive.
As a result, insurers use credit-based insurance scores—a version of your credit score tailored to assess risk from an insurance perspective. It doesn’t replace your driving history, but it works alongside it to give insurers a fuller picture of your risk level.
What Factors Are Considered?
Insurance companies don’t see your full credit report, but they do look at specific factors, such as:
- Payment history – Do you pay your bills on time?
- Outstanding debt – How much do you currently owe?
- Length of credit history – How long have you been using credit?
- New credit inquiries – Have you recently applied for a lot of credit?
- Credit mix – Do you have a mix of credit cards, loans, and other accounts?
These elements help insurers develop a credit-based score that influences your rate.
States That Limit or Ban This Practice
While most U.S. states allow insurers to use credit information, a few restrict or ban it. For example:
- California
- Hawaii
- Massachusetts
- Michigan (limited use)
- Washington (temporary bans or restrictions)
If you live in one of these states, your credit score may not be used at all or may play a smaller role in determining your premium.
How Much Can It Affect Your Rate?
The difference between a good and poor credit score can be dramatic. In some cases, drivers with poor credit may pay over 70% more than those with excellent credit—even if they have a clean driving record.
Here’s a rough idea of how your credit standing can impact your rates:
- Excellent credit – Lowest premiums
- Good credit – Moderate premiums
- Fair/Poor credit – Significantly higher premiums
How to Improve Your Score (and Lower Your Rate)
Improving your credit score is one of the most effective ways to lower your insurance premium. Start by:
- Paying bills on time
- Reducing outstanding debt
- Avoiding unnecessary credit inquiries
- Checking your credit report for errors
These habits not only help your credit but also improve your long-term financial health.
Final Thoughts
Your credit score isn’t just about borrowing money—it plays a direct role in your monthly expenses, including auto insurance. By understanding how insurers use this information and taking steps to boost your score, you can secure better rates and keep more money in your pocket.
