Does Your Credit Score Affect Car Insurance?

That might come as a surprise.

According to The National Association of Insurance Commissioners (NAIC), in most states, insurance companies use your credit history as a key factor when setting premiums—and the impact on your wallet can be significant.

Drivers with poor credit often pay thousands more annually than those with excellent credit. This article will explain how your credit score affects car insurance costs and share practical ways to lower your premiums regardless of your credit situation.

Does Your Credit Score Affect Car Insurance Rates?

Yes, your credit score can significantly impact your car insurance rates in most states, with insurers using credit-based insurance scores to help determine premiums.

When you apply for an auto policy, car insurance companies look at factors beyond just your driving record, and depending on your state and car insurer, your credit score might play a substantial role in what you pay for coverage.

Why Insurers Care About Your Credit Score

According to The Zebra, drivers with lower credit scores statistically file more car insurance claims. As a result, some insurance companies charge those with poor credit more. While drivers with good to excellent credit scores typically land the most affordable premiums.

State Regulations Vary

Not all states allow insurers to use credit scores. California, Hawaii, and Massachusetts completely ban this practice. Meanwhile, Maryland, Michigan, Oregon, and Utah have partial restrictions—for example, only allowing credit checks for initial rate setting or payment plan decisions.

The Industry Perspective

"Car insurance companies care about credit scores because, traditionally, credit has been a strong indicator of risk across large groups of drivers," explains Rashid Galadanci, CEO and co-founder of Driver Technologies.

"However, we can all understand that on an individual level, anyone could be a great driver with bad credit—and how unfair it feels to not have your actual driving safety considered in insurance pricing," adds Galadanci.

Fortunately, the industry is evolving. Insurance companies are increasingly focusing on more accurate factors, such as how you actually drive, using telematics and video technology when available.

How Much Can Your Credit Score Change Your Premium?

Your credit score can cost you thousands. A driver with poor credit might pay $4,713 annually for full coverage, while someone with excellent credit could pay just $2,308 for the same policy—a difference of over $2,400 per year.

Why such a dramatic gap? Insurers view credit as a measure of financial responsibility and risk management. Strong credit scores suggest you're less likely to file claims, while poor credit signals higher risk, prompting insurers to charge significantly more.

More Than Just Credit: Other Factors Insurers Consider

Credit is just one factor auto insurers evaluate when determining your rates. Several other key factors include:

• Driving record: Car accidents, speeding tickets, and DUIs directly impact what you pay. Clean driving records earn lower premiums than histories filled with serious violations.
• Vehicle type: High-end, luxury, or performance vehicles cost more to insure due to higher repair and replacement costs. Expect to pay more for a loaded luxury SUV than an economical sedan.
• Location: Your zip code significantly affects insurance costs. Areas with high accident rates, car theft, or severe weather risks result in higher premiums.
• Mileage: More time on the road increases accident exposure and insurance costs. Infrequent drivers might benefit from pay-per-mile policies that charge only for miles driven.
• Age and gender: Younger drivers, especially males under 25, face higher rates due to increased accident risk. Premiums typically decrease for women and middle-aged drivers with more experience.
• Coverage limits and deductibles: Higher coverage limits mean larger potential payouts, resulting in higher premiums. Higher deductibles lower premiums, but increase your out-of-pocket costs when filing claims.
• Marital status: Married drivers statistically have fewer accidents, often earning lower rates. Many insurers also offer multi-policy discounts that couples can leverage for additional savings.
• Claims history: Drivers with multiple past claims typically face higher premiums, while those with few or no claims are more likely to secure better rates.

Tips to Lower Your Car Insurance Despite Poor Credit

If you don't have the best credit, you can still secure affordable auto insurance coverage. Here are several expert strategies to help:

• Shop around: Different insurers weigh credit scores differently, so getting multiple quotes can uncover better pricing and consider temporary insurance options if relevant.
• Bundle policies: Combining auto insurance with home or renters insurance unlocks multi-policy discounts.
• Take a defensive driving course: Completing an approved course can earn you discounts while demonstrating your commitment to safe driving.
• Increase deductibles: Higher deductibles lower premiums, though make sure you can cover the amount if you need to file a claim.
• Choose your vehicle carefully: Vehicles with strong safety ratings and lower repair costs typically have lower insurance premiums.
• Ask for available discounts: Many insurers offer discounts for low mileage, safe driving habits, or installing anti-theft devices.
• Maintain steady payments: Even while improving your credit takes time, consistently paying your insurance bill on time can improve your standing with the insurer.
• Explore usage-based insurance programs: "Unlike traditional models that rely heavily on demographics or credit scores, UBI programs factor in actual driving behavior when setting prices," explains Galadanci.

Bottom Line: Credit Score & Car Insurance

Your credit score can significantly impact your car insurance rates, potentially costing you thousands more annually. While you can't change your credit overnight, comparing car insurance companies, bundling policies, and exploring usage-based insurance can help you find affordable coverage regardless of your credit situation.

Frequently Asked Questions

1. Does a low credit score mean I'll pay more for car insurance?

A low credit score might raise your auto insurance premiums. However, if you shop around, look for discounts, bundle policies, and explore usage-based insurance programs, you can still land a good deal.

2. What is a credit-based insurance score?

A credit-based insurance score reveals how likely you are to file an insurance claim. In some states where the practice is legal, insurance companies use it to help set premiums for car insurance.

3. How much more will I pay for car insurance with bad credit?

Depending on your credit and other factors, you might pay hundreds or even thousands more for a policy with bad credit. Fortunately, if you shop around, improve your credit, and leverage discounts, you may reduce your premiums.