How Does Credit Score Affect Car Insurance?

If you’ve ever felt frustrated seeing your car insurance premium and wondered why it’s so high, your credit score might be the culprit. In most states, your credit history plays a significant role in determining how much you pay for car insurance—sometimes even more than your driving record.

This connection between credit and insurance surprises many drivers. After all, what does paying your credit card bill on time have to do with how safely you drive? Yet insurance companies have found a strong correlation between credit responsibility and the likelihood of filing claims. In this guide, we’ll explain exactly how credit scores affect your car insurance rates, how much impact they have, which states ban this practice, and what you can do to lower your premiums regardless of your credit situation. 

What Is Credit-Based Insurance Scoring?

How It Differs from Regular Credit Scores

Credit-based insurance scores are similar to regular credit scores, but they’re not identical. While your FICO score ranges from 300-850 and measures your creditworthiness for lenders, insurance scores use credit data to predict how likely you are to file a claim.

Insurance scores typically range from 200-997, with higher scores indicating lower risk. The same credit information is used—payment history, debt levels, credit age—but it’s weighted differently. For instance, insurance scores might place more emphasis on certain types of late payments or credit inquiries than traditional credit scores do.

What Insurance Companies Look At

When calculating your insurance score, companies examine five main areas of your credit report:

Payment History: Your track record of paying bills on time. Late payments, collections, charge-offs, and bankruptcies all negatively impact your score.

Outstanding Debt: How much you owe compared to your available credit (utilization ratio) and your total debt load across all accounts.

Length of Credit History: How long you’ve had credit accounts. Longer histories generally improve your score because they show sustained financial behavior.

New Credit Applications: Recent hard inquiries and newly opened accounts. Too many in a short period suggest financial distress.

Credit Mix: The variety of credit types you manage—credit cards, auto loans, mortgages, student loans. A diverse mix can slightly improve your score.

Why Insurers Use Credit Scores

Insurance companies aren’t trying to punish people with financial difficulties—they’re using credit as a risk assessment tool backed by decades of industry research.

Studies consistently show that people with poor credit file more insurance claims and file higher-cost claims than those with good credit. The correlation is strong enough that credit-based insurance scoring is one of the most predictive factors for claim likelihood.

How Much Does Your Credit Score Affect Car Insurance Rates?

The difference between excellent credit and poor credit can be staggering. On average, drivers with poor credit pay 50-100% more for car insurance than those with excellent credit for identical coverage.

Here’s what this looks like in real dollars: if a driver with excellent credit pays $1,200 annually for full coverage, a driver with poor credit might pay $2,100-$2,400 for the exact same policy. That’s an extra $900-$1,200 per year just because of credit history.

Credit Score Ranges and What They Mean

Credit scores are typically categorized into five ranges, each with different insurance implications:

Excellent (800-850): You’ll qualify for the best rates insurers offer. Your credit won’t be a barrier to affordable insurance.

Very Good (740-799): You’ll still get favorable rates with minimal credit-related penalties. Most insurers consider you low-risk.

Good (670-739): Your rates will be reasonable but not the lowest available. You might pay 10-25% more than those with excellent credit.

Fair (580-669): Expect noticeably higher premiums. You’ll pay 25-50% more than drivers with excellent credit. Shopping around becomes critical.

Poor (300-579): You’ll face the highest rates, potentially 50-100% more than excellent credit drivers. You may need to work harder to find affordable coverage.

Some insurers also have a “no credit history” category, which is often treated similarly to poor credit—unfortunately penalizing young drivers and immigrants who haven’t established U.S. credit.

Read: Why Building Credit Can Help You Stop Living Paycheck to Paycheck?

Real-World Examples

Let’s look at concrete examples for a 35-year-old driver with a clean driving record seeking full coverage:

Excellent Credit (780): $1,250/year Good Credit (690): $1,550/year (24% increase) Fair Credit (620): $1,875/year (50% increase) Poor Credit (550): $2,375/year (90% increase)

For a young driver, the disparities can be even larger. A 22-year-old with excellent credit might pay $2,500/year, while the same driver with poor credit could pay $4,500-$5,000/year.

States That Ban or Limit Credit-Based Insurance Scoring

States Where Credit Cannot Affect Rates

Four states have banned or severely restricted the use of credit in determining car insurance rates:

California: Complete ban on using credit for auto insurance rating. Rates are based solely on driving record, miles driven, and years of experience.

Hawaii: Credit scores cannot be used to set auto insurance rates. Insurers focus on driving history and other risk factors.

Massachusetts: Banned credit-based insurance scoring for auto insurance. Rates are regulated and based on standardized factors.

Michigan: While credit can be used, Michigan’s unique insurance system limits its impact compared to other states.

If you live in these states, your credit history won’t affect your car insurance premium—good news if you’re rebuilding credit, but it also means excellent credit won’t help you get discounts.

States with Restrictions

Several states allow credit-based scoring but with limitations:

Maryland: Insurers must offer policies regardless of credit and cannot refuse coverage based solely on credit.

Oregon: Limits how much weight credit can carry and requires “extraordinary life circumstances” exceptions for events like divorce, medical emergencies, or job loss.

Utah: Restricts when insurers can use credit and requires them to refile rates if they change how they use credit information.

Nevada and Texas: Require insurers to provide clear explanations when credit negatively affects rates and allow consumers to request re-evaluation.

These restrictions provide some consumer protection while still allowing insurers to consider credit as one factor among many.

What Factors Make Up Your Insurance Score?

Payment History (40%): Your payment history is the single most important factor in your insurance score, typically accounting for about 40% of the calculation.

Outstanding Debt (30%): How much you owe matters almost as much as whether you pay on time, typically accounting for about 30% of your insurance score.

Length of Credit History (15%): The longer your credit history, the better your insurance score—typically accounting for about 15% of the calculation.

New Credit Applications (10%): Recent credit activity accounts for about 10% of your insurance score.

Credit Mix (5%): The variety of credit types you manage accounts for about 5% of your insurance score—the smallest factor, but still relevant.

How Credit Affects Different Types of Drivers

Young Drivers and New Credit

Young drivers face a double penalty: inexperience behind the wheel and limited credit history.

Most 18-22 year olds have only a few years of credit history, if any. Even with perfect payment records, their short credit histories result in lower insurance scores. Combined with their age, this can mean premiums that are 2-3 times higher than older drivers with established credit.

The solution? Young drivers can build credit early by becoming authorized users on parents’ credit cards, opening a secured credit card, or taking out a small credit-builder loan. Starting this process at 18 can significantly reduce insurance costs by 21-22.

Read: ​​Best Tips for Buying Car Insurance | Beem

Drivers Rebuilding Credit

If you’ve experienced bankruptcy, foreclosure, or other financial difficulties, you know the impact extends beyond loan approvals—it affects your insurance costs too.

The good news: insurance scores improve faster than you might expect. While negative marks remain on your credit report for 7-10 years, their impact diminishes significantly after 2-3 years if you’ve reestablished positive credit behavior.

Focus on consistent on-time payments and reducing debt. Even small improvements in credit can lower your insurance premium by 10-20% within a year or two.

Drivers with No Credit History

Being “credit invisible”—having no credit history at all—often results in rates similar to those with poor credit.

This particularly affects recent immigrants, young adults who’ve never used credit, and older adults who only used cash and debit cards their entire lives.

The solution is building credit from scratch: secured credit cards, credit-builder loans, or becoming an authorized user. Within 6-12 months, you can establish enough history to improve your insurance score.

Senior Drivers with Excellent Credit

Older drivers with decades of credit history and excellent payment records benefit most from credit-based insurance scoring.

A 65-year-old with a 40-year credit history, no late payments, low utilization, and diverse credit types will have an excellent insurance score. This can offset age-related rate increases that occur after 70-75.

If you’re in this category, your credit is a major asset. Protect it carefully—even one late payment can cost you more in increased insurance premiums than in interest charges.

Other Factors That Affect Car Insurance Rates

Driving Record: While credit is important, your driving record still matters enormously. Accidents, speeding tickets, DUIs, and other violations significantly impact your rates.

Age and Experience: Age significantly affects rates, especially for drivers under 25 and over 70-75.

Location: Your ZIP code affects rates as much as or more than credit in many cases.

Vehicle Type: What you drive matters. Expensive cars, high-performance vehicles, and models with high theft rates cost more to insure. A Honda Civic with excellent safety ratings costs far less to insure than a BMW M3, even with identical coverage and driver profiles.

Coverage Levels and Deductibles: Higher liability limits and lower deductibles increase premiums. Minimum coverage costs significantly less than full coverage with high limits.

How to Check Your Credit-Based Insurance Score

Unlike regular credit scores, insurance scores aren’t provided by all credit bureaus as standard reports. However, you can obtain them:

LexisNexis: Offers free annual reports through their “LexisNexis Consumer Center.” Their Attract insurance score is widely used by insurers.

FICO: Provides FICO Auto Insurance Score through myFICO.com for a fee (usually $19.95-$39.95).

TransUnion: Offers TransUnion Insurance Score through their website.

Some insurance companies provide your insurance score when they deny coverage or charge higher rates due to credit—this is called an “adverse action notice.”

How to Improve Your Credit Score for Better Insurance Rates

Pay Bills on Time: On-time payment is the single most important action you can take. Set up automatic payments for at least the minimum due on all credit accounts.

Reduce Credit Card Balances: High credit utilization hurts your score significantly. Aim to keep balances below 30% of your credit limit on each card, and ideally below 10%.

Don’t Close Old Credit Accounts: Closing credit cards shortens your average credit history and reduces your available credit, both of which hurt your score.

Limit New Credit Applications: Each hard inquiry from a credit application can temporarily drop your score by 5-10 points.

Fix Errors on Your Credit Report: Review your credit reports from all three bureaus (Equifax, Experian, TransUnion) annually at AnnualCreditReport.com.

What to Do If You Have Poor Credit

Shop Around More Aggressively

When you have poor credit, the rate difference between insurers becomes even more dramatic. Get quotes from at least 5-7 companies. Include national carriers (GEICO, Progressive, State Farm), regional insurers, and companies specializing in non-standard or high-risk insurance. Use online comparison tools, but also contact companies directly and work with independent agents who can quote multiple insurers at once.

Ask About Credit-Improvement Programs

Some insurers offer programs that reward credit improvement. Ask each insurer if they have programs for drivers actively improving their credit.

Look for Insurers That Weigh Credit Less

Not all insurance companies weight credit equally. Some focus more on driving record, age, and location. Companies known for being more lenient with credit issues include The General, Direct Auto Insurance, Safe Auto and Acceptance Insurance. These non-standard insurers may offer better rates if your credit is poor but your driving record is clean.

Consider Usage-Based Insurance

Telematics programs like Snapshot (Progressive), SmartRide (Nationwide), or DriveEasy (GEICO) track your actual driving behavior. If you’re a safe driver, you can earn 10-30% discounts based on your driving rather than your credit. Hard braking, rapid acceleration, late-night driving, and mileage all factor in.

Increase Your Deductible

If you can afford higher out-of-pocket costs in case of an accident, raising your deductible from $500 to $1,000 or even $2,000 can reduce premiums by 20-40%. Just make sure you have emergency savings to cover the higher deductible if you need to file a claim. This strategy only works if you can actually afford to pay the deductible.

How Often Do Insurers Check Your Credit?

At Initial Application: When you first apply for insurance, the company runs your credit to calculate your initial rate. This is typically a soft inquiry that doesn’t affect your credit score. However, some insurers use hard inquiries, so ask beforehand if you’re concerned.

At Renewal: Most insurers re-check your credit at each policy renewal—typically every 6 or 12 months.

When You Make Policy Changes: Adding a vehicle, adding a driver, or making significant coverage changes often triggers a new credit check.

Continuous Monitoring vs. Periodic Checks: Most insurers check credit periodically (at application and renewal) rather than monitoring it continuously.

Conclusion

Your credit score significantly affects your car insurance rates in most states, often increasing premiums by 50-100% for drivers with poor credit compared to those with excellent credit. While this might seem unfair, it’s based on statistical correlations between credit behavior and claim likelihood.

The good news is you have control over your credit. Paying bills on time, reducing debt, avoiding new credit applications, and correcting errors can improve your insurance score within months and lower your premiums at your next renewal.

Ready to find the best car insurance rates for your credit situation? Compare personalized quotes from top insurers with Beem and discover how much you can save, regardless of your credit score.

Download Beem today from the App Store or Google Play. Staying informed and structured today can make finance management calmer and more predictable.

Frequently Asked Questions