When shopping for car insurance, most people expect their driving record, age, and vehicle type to influence their rates. But many are surprised to learn that in most U.S. states, your credit score also plays a major role in how much you pay for car insurance.
But why does your credit have anything to do with how you drive? It’s a fair question—and the answer comes down to risk assessment.
How Insurers Use Credit-Based Insurance Scores
Insurance companies don’t look at your full credit report like a lender would, but they do use a specialized version called a credit-based insurance score. This score includes factors like:
- Payment history
- Outstanding debt
- Credit utilization
- Length of credit history
- New credit inquiries
These elements are analyzed to predict how likely you are to file a claim. According to multiple industry studies, people with lower credit scores statistically tend to file more claims—and more expensive ones—than those with higher credit scores.
So, in the eyes of insurers, a lower credit score equals higher risk, which translates to higher premiums.
Is This Legal?
In most states, yes. Insurance companies are allowed to use credit scores when calculating your rate. However, a few states have banned or restricted the practice:
- California
- Hawaii
- Massachusetts
- Michigan (partially restricted)
If you live outside these states, your credit is almost certainly part of your insurance pricing equation—even if you’ve never had an accident.
How Much Can Your Credit Score Affect Your Rate?
The impact can be significant. A driver with excellent credit can pay hundreds of dollars less per year than someone with poor credit—even with identical driving records and vehicles.
Here’s a rough example based on national averages in 2025:
- Excellent credit (750+) – $1,200/year
- Average credit (650–700) – $1,500/year
- Poor credit (below 600) – $2,000+/year
This makes improving your credit score one of the most effective long-term strategies for reducing your car insurance premium.
Tips to Improve Your Credit Score for Better Rates
If your credit is less than perfect, don’t worry—there are steps you can take:
- Pay bills on time — Payment history is the biggest factor.
- Reduce outstanding debt — Lower credit utilization helps.
- Check your credit report — Dispute any errors that could be dragging your score down.
- Avoid opening too many new accounts at once — Too many inquiries can hurt.
- Be patient — Improvements take time, but even a small bump in your score can lower your rate.
Final Thoughts
Your credit score affects your car insurance rate because insurers view it as a predictor of risk. While it may not seem fair to all drivers, it’s a common practice in the industry—and it could be costing you more than you realize.
The good news? Improving your credit not only helps with loan approvals but can also lead to lower insurance premiums, better coverage options, and higher savings in the long run. It’s a win-win for your wallet.
