How Your Credit Score Affects Your Car Insurance Rates

Key Takeaway:

In most states, insurance companies use a special credit-based score to decide your premium. Drivers with poor credit can end up paying double the rate of drivers with excellent credit.

Many people think their driving record is the only thing that sets their premium. But in most states, your financial history plays a massive role too. This guide shows how credit score affects car insurance and what you can do about it.

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Why Do Insurance Companies Look at Your Credit?

Insurance companies want to know how risky you are. Big studies show a strong link between credit history and insurance claims. People with higher credit scores tend to file fewer claims.

Because of this, companies use your financial past to predict future losses. They do not look at your exact credit score that banks use. Instead, they create a special credit-based insurance score to evaluate your risk.

How Much Can a Poor Credit Score Cost You?

The price difference between good and bad credit is often shocking. A driver with poor credit might pay twice as much as someone with excellent credit. This happens even if both drivers have clean driving records.

Let us look at how these rates change on average. The table below shows how your rating tier can change your yearly premium.

Which States Do Not Allow This Practice?

Some states think this system is unfair to low-income drivers. Because of this, they banned the practice completely. If you live in one of these states, your credit history will not change your rate.

Currently, California, Hawaii, Massachusetts, and Michigan do not allow credit-based insurance scores. Some other states have partial bans. For more information on saving money, read our guide on auto insurance discounts to find other ways to save.

How to Check Your Credit-Based Insurance Score

You cannot easily buy your exact insurance score online like a regular credit report. However, it is built from the same data. Your payment history and total debt are the most important factors.

You can check your regular credit reports for free once a year. Look for errors like wrong accounts or late payments that are not yours. Fixing these mistakes can raise both of your scores quickly.

Easy Ways to Improve Your Credit Score

Improving your credit history takes time, but the payoff is worth it. You will get cheaper loans and lower car insurance rates. Here are some simple steps to get started today.

• Pay bills on time: Set up auto-pay so you never miss a due date.
• Keep balances low: Try to use less than 30 percent of your credit limit.
• Keep old accounts open: Longer credit history helps your score.
• Limit new applications: Applying for too many cards at once can hurt you.

Other Ways to Save on Car Insurance

If your credit is not perfect yet, do not worry. You can still find ways to lower your monthly bill. Many companies offer discounts that have nothing to do with your finances.

Ask your agent about safe driver programs or low-mileage discounts. You can also raise your deductible to lower your monthly payments. Just make sure you have enough cash saved to cover that deductible if you get in an accident.

Frequently Asked Questions