How Does Credit Score Affect Car Insurance?
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Written byRay Prince
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Ray PrinceInsurance Writer
Ray Prince is an auto insurance writer for Compare.com based in Miami. He specializes in writing long-form content and product descriptions for the automotive and auto insurance industries. His work appears on sites such as Freeway Insurance, Auto Guide, Turn5, Mercedes Benz U.S.A., and Pelican Parts, with past and current roles as a digital operations manager at Pandora Media and iHeartMedia.
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Edited byNick Versaw
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Nick Versaw leads Compare.com's editorial department, where he and his team specialize in crafting helpful, easy-to-understand content about car insurance and other related topics. With nearly a decade of experience writing and editing insurance and personal finance articles, his work has helped readers discover substantial savings on necessary expenses, including insurance, transportation, health care, and more. As an award-winning writer, Nick has seen his work published in countless renowned publications, such as the Washington Post, Los Angeles Times, and U.S. News & World Report. He graduated with Latin honors from Virginia Commonwealth University, where he earned his Bachelor's Degree in Digital Journalism.
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One factor insurance companies use to determine how high or low your premiums are is your credit score. The higher your credit score, the more likely you will pay lower premiums. Does this mean you need a perfect score to take advantage of low rates? Not necessarily!
In this guide, we'll answer the question “Does credit score affect car insurance,” including stats on average premiums based on different credit score categories, like excellent and fair credit. We'll also dive into whether or not getting auto insurance quotes can impact your credit, as well as tips on how to boost your credit score.
Think your current auto insurance premium may be a little too high? Now may be a great time to see if you qualify for lower rates using Compare.com’s rate comparison tool:
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What is a Credit Score?
Employers, lenders, and insurance companies use your credit score to understand your creditworthiness.
Your credit score is based on many things, like how much debt you have, if you've missed any payments, and how long you've been using credit. It's a way for auto insurance companies to get a snapshot of how “risky” you are to insure.
When it comes to car insurance, your credit score can play a role in how much you pay. Insurance companies use your credit score as one of the factors to determine how risky it is to insure you. So, if your credit score is low, insurers think there's a higher chance you might have trouble paying your premiums or file more insurance claims than normal. So, they set a higher premium.
How Much Does Credit Affect Car Insurance Rates?
If you have a low credit score, it could mean higher car insurance premiums. But don't worry. It's not the only thing car insurance companies look at when figuring out how much of a risk you are to insure.
There are lots of other factors they take into account too, like your age, gender, driving record, how much your deductible is, and your liability limits. These factors combine to give them a bigger picture of how likely you are to file a future claim.
According to data collected by Quadrant Information Services, here is the average premium paid for liability-only and full-coverage insurance for people with varying credit levels:
Monthly Premiums for Liability-Only Insurance | Monthly Premiums for Full-Coverage Insurance | |
|---|---|---|
| Excellent Credit | $119 | $262 |
| Good Credit | $143 | $315 |
| Fair Credit | $174 | $381 |
| Poor Credit | $277 | $589 |
As you can see, someone with poor credit could end up paying $158-$327 more per month than someone with excellent credit. It pays off to work on raising your credit.
Do Insurance Companies Check Your Credit?
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In most states, it's common for insurance companies to check your credit score. Companies like GEICO, Nationwide, and Allstate use it as one of the many things they look at when figuring out how much your car insurance should cost.
But some states don’t allow for credit scores to influence insurance rates. Let’s go over whether getting an insurance quote affects your credit and which states restrict this process.
Does Getting a Quote Affect Your Credit?
Great news! Getting an auto insurance quote won't affect your credit score. Most auto insurance companies use a soft inquiry during the quote process, which doesn't impact your score.
However, if you decide to apply for a policy, some insurers may perform a hard inquiry, which can cause a temporary drop in your score.
Try to be strategic in your applications to minimize the effect of a hard inquiry. We recommend completing all applications within a 14-day window. Credit bureaus often treat multiple applications as a single inquiry on your credit report. This method can help prevent multiple hard inquiries from lowering your score.
Are There Restrictions on the Use of Credit Scores to Determine Rates?
According to Experian, California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Utah, and Washington have rules prohibiting or restricting the use of credit scores.
The rules differ in each state. For example, in Michigan, auto insurance companies can use credit scores, but there are limits to how much weight they can give it compared to other factors. However, credit scores can't be used in Oregon when setting auto insurance rates, thanks to protection from the Oregon Division of Financial Regulation.
In other states, like Utah, insurance companies can use credit scores but can't use them as the only thing to make an underwriting decision. Plus, if you've been a policyholder for at least 60 days, they can't cancel your policy or reject you based on your credit score alone.
It's worth checking to see what the rules are in your state, so you can better understand how insurance companies might use your credit score.
How Can I Improve My Credit Score?
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To qualify for the best rates, here are three ways to improve your credit score quickly.
1. Make On-Time Payments
According to FICO, payment history makes up 35% of your credit score. We recommend making on-time payments across all of your lines of credit, including student loans, mortgages, and premiums. Even a single late payment could drop your credit score by 100 points or more, which will be viewed negatively by auto insurance companies.
2. Lower Credit Utilization Ratio
Using the same FICO formula, credit utilization accounts for 30% of your credit score. It's the ratio of your total credit card balances versus your total credit card limits. For example, a balance of $4,000 on a total credit limit of $10,000 equals a credit utilization ratio of 40%.
As a best practice, keep your credit utilization ratio in the single percentage digits (e.g., 7-10%). Low credit utilization lets creditors (such as auto insurance companies) know you can manage credit responsibly.
3. Dispute Credit Reporting Errors
According to the Federal Trade Commission, one in five people have an error on their credit report. These errors include incorrect names, balances, and a lot more.
To safeguard against this, we recommend pulling your credit report from the three major reporting credit bureaus (Equifax, TransUnion, and Experian) and checking for errors every couple of months.
If you see any errors, file a dispute with the creditor/credit bureau in question.
Be Open to Lower Rates With a Quick Search
Now that you understand the answer to the question “Does credit score affect car insurance?”, now may be a good time to compare quotes from affordable auto insurance providers. Give Compare.com's rate comparison tool a shot to see if you can save 30% or more on your premium:
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Methodology: All of the data referenced in this article has been gathered in collaboration with Quadrant Information Services. We analyzed more than 2.5 million rows of carrier-reported data to calculate the average rates referenced above. All rates are based on an insurance profile of a single-vehicle policy for a Honda Accord driver. For more information on calculating rates, please reference our data methodology.
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Ray PrinceInsurance Writer
Ray Prince is an auto insurance writer for Compare.com based in Miami. He specializes in writing long-form content and product descriptions for the automotive and auto insurance industries. His work appears on sites such as Freeway Insurance, Auto Guide, Turn5, Mercedes Benz U.S.A., and Pelican Parts, with past and current roles as a digital operations manager at Pandora Media and iHeartMedia.
Nick Versaw leads Compare.com's editorial department, where he and his team specialize in crafting helpful, easy-to-understand content about car insurance and other related topics. With nearly a decade of experience writing and editing insurance and personal finance articles, his work has helped readers discover substantial savings on necessary expenses, including insurance, transportation, health care, and more. As an award-winning writer, Nick has seen his work published in countless renowned publications, such as the Washington Post, Los Angeles Times, and U.S. News & World Report. He graduated with Latin honors from Virginia Commonwealth University, where he earned his Bachelor's Degree in Digital Journalism.