When applying for a car loan or lease, most people understand that their credit score affects the interest rate they’ll pay. But what many drivers don’t realize is that credit can also influence auto insurance premiums. Depending on where you live and how insurers in your state operate, your credit history could either help you secure lower insurance rates or cost you significantly more each year.
In today’s competitive insurance market, understanding how credit affects your auto insurance can empower you to make smarter financial decisions, cut costs, and avoid surprises. Let’s break down the details.
Does Credit Score Affect Car Insurance Rates?
Yes — in most states, credit scores do play a role in determining car insurance rates. Many insurers use a credit-based insurance score (CBIS) to assess risk. Studies have shown that drivers with stronger credit histories tend to file fewer claims, while those with poor credit are statistically more likely to file claims.
Insurance companies such as Allstate, GEICO, Progressive, and Nationwide often use CBIS when setting premiums, though regulations vary by state.
Credit Scores vs. Insurance Scores
While your FICO credit score determines your eligibility for loans, insurers rely on a credit-based insurance score. Here’s the difference:
- Credit Score (FICO/VantageScore): Measures how you manage borrowed money and debt repayment.
- Credit-Based Insurance Score (CBIS): Predicts the likelihood of filing insurance claims, not whether you’ll pay back debt.
Why Insurers Use Credit-Based Insurance Scores
Insurance companies use CBIS because they want to predict losses. Drivers who file frequent claims cost insurers more money, so higher-risk drivers face higher premiums. Conversely, good credit history often translates into cheaper insurance rates.
A 2023 Consumer Federation of America (CFA) study found:
- Drivers with fair credit pay 49% more than those with excellent credit.
- Drivers with poor credit pay 115% more than excellent-credit drivers.
- Even with a clean driving record, poor credit can nearly double your insurance premium.
State Regulations: Where Credit Can’t Be Used
Not all states allow insurers to use credit in rate calculations. For example:
- California, Hawaii, Massachusetts, and Michigan prohibit the use of credit history for auto insurance pricing.
- States like Maryland limit how credit can be applied (it cannot be the sole reason for denial or cancellation).
Insurance Companies That Don’t Check Credit
While most large insurers review credit, a few smaller providers avoid it, such as:
- Dillo Insurance (Texas)
- Cure Auto Insurance (Michigan)
- Root Insurance (working toward eliminating credit checks)
These options may be worth exploring if you live in states where credit is factored heavily.
Factors That Affect Insurance Scores
Insurers consider several elements of your financial history when calculating CBIS:
Negative factors that lower scores:
- Late or missed payments
- Accounts in collections
- High credit utilization
- Multiple recent credit inquiries
- Limited or short credit history
Positive factors that improve scores:
- Long track record of responsible borrowing
- On-time bill payments
- Low credit utilization
- Accounts in good standing
4 Ways to Improve Credit for Lower Auto Insurance Rates
Improving your credit takes time, but the payoff can be significant for both loan approvals and insurance savings. Here’s how:
- Review your credit report annually to fix errors. Use AnnualCreditReport.com for free access.
- Pay bills on time — set up autopay if necessary.
- Reduce debt balances to lower your utilization ratio.
- Keep utilization under 30% of available credit.
Other Ways to Save on Car Insurance
Even if credit is a challenge, you can lower premiums by:
- Shopping quotes from multiple insurers.
- Asking for discounts (safe driver, bundling, military, autopay, etc.).
- Adjusting coverage — consider whether collision or comprehensive is necessary for older vehicles.
- Raising your deductible if you have an emergency fund to cover it.
The Bottom Line: Credit and Car Insurance
Your credit history is more than just a loan approval tool — it directly impacts how much you pay for auto insurance. While good credit can unlock meaningful savings, poor credit could cause premiums to soar. Luckily, both improving your financial habits and shopping around for better insurance options can help mitigate costs.
For drivers looking to cut expenses, the best strategy is a mix of credit improvement, careful insurance shopping, and exploring all available discounts. Over time, this proactive approach can lead to hundreds — if not thousands — of dollars in savings.
Reference : Nicole Dow