When you think about your credit score, you probably associate it with things like credit cards, loans, or mortgages. But did you know that your credit can also influence how much you pay for insurance?
Across most of the United States, insurance companies use a specialized version of your credit score to help determine how much to charge you for car, home, or renters insurance. This practice may come as a surprise to many, but understanding it can help you save hundreds—or even thousands—of dollars a year.
In this article, we’ll break down how credit-based insurance scores work, why they matter, and how improving your credit with Beem can help you reduce your insurance premiums over time.
What Are Insurance Premiums and How Are They Calculated?
Insurance premiums are the amount you pay—monthly, semi-annually, or annually—for coverage that protects you from financial loss. Whether it’s for your car, home, or rental property, insurers set these prices based on how much risk they associate with covering you.
Premiums are influenced by many factors, including:
- Your age and location
- Type and value of the asset (car or home)
- Previous claims history
- Safety features or usage (miles driven per year, for example)
- For auto insurance: your driving record, vehicle model, and zip code
What many people don’t realize is that your credit can also be a major factor. Insurers often calculate a credit-based insurance score, which isn’t the same as your FICO or VantageScore, but still heavily relies on your credit behavior.
What Is a Credit-Based Insurance Score?
A credit-based insurance score is a number that insurers use to predict the likelihood that you’ll file a claim. Unlike your regular credit score—used by lenders to determine if you qualify for loans or credit cards—this score focuses on risk from an insurer’s perspective.
Credit-based insurance scores are developed by companies like FICO, LexisNexis, and TransUnion. They’re calculated using many of the same credit report factors, such as:
- Payment history
- Amount of outstanding debt
- Length of credit history
- Types of credit
- Number of inquiries
However, these scores do not consider your income, job title, race, gender, or where you live. They are primarily used to determine how risky it might be to insure you—not how well you repay loans.
Why Do Insurers Use Credit to Determine Premiums?
Insurance companies have found a statistically significant relationship between credit scores and the likelihood of filing claims. Research shows that individuals with lower credit scores tend to file more frequent or more expensive insurance claims.
Insurers argue that using credit-based scores helps them price their policies more accurately:
- Lower scores = higher likelihood of claims = higher premiums
- Higher scores = lower risk = lower premiums
While controversial, this approach is legal in most states and has become a standard part of underwriting for auto and homeowners insurance.
How Credit Score Affects Auto Insurance Premiums
Auto insurance is where your credit score can have one of the largest impacts. Premiums can vary by hundreds—or even thousands—of dollars a year depending on your credit profile.
Here’s how credit tiers generally affect auto rates:
- Excellent credit (750+): Best rates available
- Good credit (700–749): Favorable rates
- Fair credit (600–699): Moderate to above-average rates
- Poor credit (<600): Highest premiums, often double or more compared to those with excellent credit
To give a clearer idea of the impact, let’s consider a real-world example. Imagine two drivers:
- Driver A has excellent credit (score: 780), a clean driving record, and drives a mid-sized sedan.
- Driver B has poor credit (score: 580) but is otherwise identical in terms of vehicle, driving history, and location.
In many states, Driver B could pay 50–100% more in annual premiums than Driver A, simply due to their credit score. If Driver A pays $1,000/year, Driver B could pay $1,500–$2,000 for the same policy. Over five years, that’s a difference of $2,500–$5,000.
How Credit Score Impacts Homeowners and Renters Insurance
Homeowners insurance premiums are also affected by credit—sometimes even more than auto insurance. A policy that costs $1,200 per year for someone with excellent credit might cost $2,000+ for someone with poor credit.
Even renters insurance, typically costing $150–$300 annually, can be significantly more expensive if your credit score is low. This is because insurers associate poor credit with higher likelihood of claims, missed payments, or policy cancellations.
Maintaining good credit can result in long-term savings across all types of insurance.
States That Limit or Prohibit Credit-Based Insurance Pricing
Not all states allow insurance companies to use credit scores when determining premiums. In an effort to reduce discrimination and ensure fairness, some states have either banned or restricted the practice.
States with full or partial bans include:
- California
- Hawaii
- Massachusetts
- Michigan
- Maryland
If you live in these states, your credit score may have no bearing on your insurance rates. However, in most other U.S. states, insurers continue to rely heavily on credit-based insurance scores to determine how much you pay.
How to Check and Understand Your Credit-Based Insurance Score
Unlike credit scores, credit-based insurance scores are not routinely disclosed. However, you can still request this information directly from credit reporting agencies like LexisNexis, TransUnion, or Equifax.
Here’s how to find out:
- Ask your insurer if they used a credit-based score and from which agency
- Request a Consumer Disclosure Report from LexisNexis
- Review your report for accuracy: unpaid collections, high debt, or late payments may be weighing you down
If your score seems low, look at the “reason codes” provided to understand what factors are negatively affecting your rating.
How to Improve Your Credit to Lower Insurance Premiums
The best way to lower credit-based insurance premiums is to improve the credit factors insurers evaluate.
Steps to take:
- Pay bills on time: Your payment history is the most important factor
- Lower your credit card balances: Aim for utilization under 30%
- Avoid unnecessary hard inquiries: Space out new credit applications
- Don’t close old accounts: Keep your credit age intact
- Dispute credit report errors: Fix mistakes that drag down your score
Improving your credit may seem daunting, but even small steps can lead to measurable changes within a few months.
Here’s a deeper dive into how you can make progress:
- Check your credit report regularly and correct inaccuracies
- Create a debt repayment plan (snowball or avalanche method)
- Use secured credit cards if you’re rebuilding
- Keep credit utilization under 10% if possible
- Be patient—positive changes take time but are worthwhile
These improvements don’t just help with insurance—they also support better loan terms, higher credit limits, and improved financial health.
How Beem Helps You Improve Your Credit and Save on Insurance
Beem helps you take control of your credit health—which can directly and indirectly lower your insurance costs.
What you get with Beem:
- Credit health breakdowns: See what’s helping or hurting your score
- Automated alerts: Get notified about due dates and score changes
- Credit utilization insights: Know when you’re using too much of your limit
- Customized tips: Beem recommends steps specific to your profile
- Built-in budget planner: Create a repayment strategy that fits your finances
Thousands of Beem users have already used these features to improve credit and reduce unnecessary insurance expenses.
Common Questions About Credit Score and Insurance
Does my credit score directly affect my car insurance rates?
Yes, in most states. Insurers use a version of your credit score to assess risk and help set your auto insurance premium.
Will improving my credit lower my insurance premium immediately?
Absolutely. Better credit can lead to lower premiums over time. Just make payments on time and keep credit balances low.
Is it legal for insurers to use credit scores?
Yes, it’s legal in most U.S. states. A few states have banned or restricted the practice.
Do all types of insurance use credit scores?
Primarily auto, homeowners, and renters insurance. Health and life insurance typically use different models that don’t involve credit-based scores.
How often do insurers check your credit?
Usually at the time of application or renewal. These checks are typically soft pulls and don’t hurt your credit score.
What is a credit-based insurance score?
It’s a special score used by insurers to predict the likelihood of a claim. It’s based on credit behavior, not income or job history.
How do insurers access my credit information?
Insurers use credit reports from major bureaus to generate a credit-based insurance score. This score helps them assess your risk level when pricing your policy.
Will getting a quote hurt my credit score?
No, insurance companies typically perform a soft inquiry, which does not impact your credit score. Only hard inquiries from lenders affect your credit.
Why would my credit score matter if I’ve never filed a claim?
Insurers use credit data as a statistical predictor of future claims. Even without past claims, your credit behavior can influence how they assess your risk.
What’s the difference between a credit score and a credit-based insurance score?
A credit score predicts loan repayment behavior, while a credit-based insurance score predicts the likelihood of filing insurance claims. They use similar data but serve different purposes.
Wrap Up Thoughts
Credit scores affect more than your ability to borrow—they can quietly increase the cost of everyday essentials like car and home insurance. Understanding the link between your credit and insurance premiums empowers you to take control of your financial future.
Improving your credit can lead to better rates, greater savings, and more flexibility when selecting the coverage you need. And with Beem’s smart credit tools, staying ahead of your score has never been easier.
Ready to save on your premiums? Start by improving your credit score—one smart step at a time with Beem.
