How Your Credit Score Affects Car Insurance Rates
2026-04-13 · 7 min read · Education
The Link Between Credit and Insurance Pricing
Most drivers know that their driving record and vehicle choice affect insurance rates, but fewer realize that their credit history is one of the single biggest factors in determining their premium. In 46 states, insurers use a metric called a credit-based insurance score to help set your rate — and the difference between excellent and poor credit can mean paying double or more.
What Is a Credit-Based Insurance Score?
A credit-based insurance score is different from a traditional FICO score. While FICO predicts your likelihood of repaying debt, an insurance score predicts your likelihood of filing a claim. These scores are calculated using factors like:
- Payment history (40%): Late payments, collections, and bankruptcies
- Outstanding debt (30%): Credit utilization ratio and total balances
- Credit history length (15%): Age of your oldest and newest accounts
- New credit (10%): Recent inquiries and new account openings
- Credit mix (5%): Variety of credit types (cards, mortgage, auto loan)
How Much Does Credit Affect Your Rate?
The impact is substantial. Based on industry data from the Zebra and NerdWallet:
- Excellent credit (800+): Pay 20-40% below average
- Good credit (670-799): Pay roughly the average rate
- Fair credit (580-669): Pay 30-50% above average
- Poor credit (300-579): Pay 50-100% above average
In dollar terms, the difference between excellent and poor credit can mean $1,000-$2,500 more per year for the same coverage on the same vehicle.
States That Ban Credit-Based Insurance Pricing
Four states prohibit insurers from using credit scores in auto insurance pricing:
- California — Proposition 103 (1988)
- Hawaii — Since 2009
- Massachusetts — Longstanding regulation
- Michigan — Effective 2022
Washington state also implemented a temporary ban in 2021 that has been extended. If you live in one of these states, your credit score has no direct effect on your auto insurance premium.
Why Insurers Use Credit Scores
Studies by the Federal Trade Commission (FTC, 2007) and the National Association of Insurance Commissioners (NAIC) found a statistically significant correlation between credit-based insurance scores and the likelihood of filing claims. Insurers argue this allows more accurate pricing. Consumer advocates counter that it disproportionately impacts lower-income households and minority communities.
How to Improve Your Insurance Score
Since credit-based insurance scores use similar data to your credit score, the same improvement strategies work:
- Pay all bills on time — Payment history is the largest factor
- Reduce credit card balances — Aim for under 30% utilization
- Don't close old accounts — Length of credit history matters
- Limit new credit applications — Multiple inquiries can lower your score
- Check your credit report for errors — Dispute inaccuracies at annualcreditreport.com
Improvements in your credit score can take 3-6 months to be reflected in your insurance score, so plan ahead of your renewal date.
Shopping Around Matters More with Fair/Poor Credit
Different insurers weight credit scores differently. A driver with fair credit might be quoted $2,500/year by one company and $1,600/year by another for identical coverage. If your credit is below average, comparing quotes from at least five insurers is critical. Check our company comparison page for carrier-specific data.
Frequently Asked Questions
- Does checking my car insurance quote affect my credit score?
- No. When insurers check your credit for an insurance quote, it is a "soft inquiry" that does not affect your credit score. Only "hard inquiries" — typically from loan or credit card applications — impact your score. You can get as many insurance quotes as you want without any credit score effect.
- How much more do drivers with bad credit pay for car insurance?
- Drivers with poor credit (below 580) pay 50-100% more than drivers with excellent credit. In dollar terms, that translates to roughly $1,000-$2,500 extra per year for the same coverage. The exact amount varies by state and insurer.
- Which states do not allow credit scores in car insurance?
- California, Hawaii, Massachusetts, and Michigan prohibit insurers from using credit scores to determine auto insurance rates. Washington state also has an extended temporary ban in place. If you live in one of these states, your credit has no direct effect on your premium.
- Can I get car insurance with bad credit?
- Yes, all drivers can get car insurance regardless of credit score. However, you will likely pay higher rates. To minimize the impact, shop around aggressively (rate differences are largest for drivers with poor credit), ask about discounts, and consider insurers that place less weight on credit, such as USAA or local/regional carriers.
- How long does it take for a better credit score to lower my insurance rate?
- Most insurers re-check your credit score at each renewal period (every 6 or 12 months). Improvements to your credit score typically take 3-6 months to show up in your insurance score. Plan credit improvement efforts at least 6 months before your renewal for the best results.
The CarInsurancePeek editorial team aggregates and verifies car insurance rate data from NAIC & State DOI. Every statistic is cross-referenced against official state DOI filings before publication, with quarterly re-verification cycles.
Read our full methodology or contact us with corrections.