Does Credit Score Affect Car Insurance

How Does Credit Score Affect Car Insurance?

If you have bad credit, you’ll likely face higher than average car insurance rates. Find out how much higher, and why.

credit score image showing good credit

Insurance companies typically consider your credit score to set your auto insurance premiums. They use your credit score to determine your auto insurance score. The higher your auto insurance score is, the lower risk you likely are, and the lower your insurance rates may be. So, a bad credit score usually means higher insurance rates.

Unless you live in California, Hawaii, Michigan or Massachusetts, which ban the practice, your insurer will likely use this score to determine your rates. They use it to predict the likelihood of a customer filing a claim. This article covers everything you need to know about credit scores and car insurance, including:

How does your credit score affect auto insurance rates?

As your credit score increases, your annual car insurance rates tend to decrease. According to our data, having a “worst” credit score versus an “excellent” credit score can raise your annual insurance rates by 112%. Having an excellent credit score can lower premiums by $1,882 annually.

Drivers who don’t provide a credit score (categorized as “none”) are estimated to have a lower premium than those with bad credit scores. However, even if you don’t provide your credit score, your insurance company may analyze your credit score when you provide your Social Security number. Your final rates will then be calculated off that score combined with other factors like your driving record and location. For an accurate quote, provide your credit score when you first begin shopping for insurance.

Insurance companies and credit scores

Insurance companies weigh your credit score differently to determine your insurance premiums. How much your credit score impacts your insurance rates depends on your insurer. We compared rates and credit scores from major auto insurance companies in Texas:

Credit ratingAllstateGEICONationwideState FarmUSAA
Worst$2,336$3,020$3,912$3,482$3,586
Below Fair$2,091$2,373$3,813$2,416$2,454
Good$1,881$1,781$2,501$1,776$1,480
Excellent$1,676$1,389$2,099$1,195$1,289
None$2,277$2,236$3,278$1,977$1,968
Note: Average rates are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.

Out of the major insurance companies we compared, we found that State Farm charges the highest increase from bad to good credit score, raising prices an average 191%. According to our data, Allstate has the lowest rates for a bad credit score, charging around $2,336 annually.

A clean driving record and good insurance score can lower your costs. Compare rates to see how much you can save with a good insurance score.

Why do car insurance companies check your credit score?

Insurers believe there is a connection between credit scores and the likelihood and number of insurance claims filed. So, they use a driver’s credit score to determine their insurance score. However, it’s a controversial practice. Arguments are made in support of drivers with poor credit. They may be more likely to file a claim because they lack the resources to pay for repairs on their own.

If insurers are able to charge more based on credit scores, it helps justify higher premiums. This has led some consumer advocates to label the insurance industry’s scoring practices as unfair. It helps those with good credit while negatively affecting low-income drivers who would benefit the most from lower rates.

Legislatures in California, MassachusettsMichigan and Hawaii have laws that ban insurance agencies from using credit as a factor in determining car insurance rates. Some insurance companies don’t use credit as part of their underwriting process.

Do insurance quotes affect your credit score?

No, getting car insurance quotes won’t affect your credit score. Shopping for car insurance won’t lower your credit score in the same way applying for credit cards will. That’s because auto insurance companies don’t do a hard credit pull for car insurance quotes like credit card companies do.

What is an auto insurance score?

Auto insurance scores are credit-based scores that your auto insurance company calculates to determine how risky you are to insure, or how likely you are to file an insurance claim. Like a credit score, the higher your insurance score is, the better. If you have a good insurance score, your premiums should be lower.

How insurance scores are calculated

The criteria for calculating a consumer’s insurance score varies by insurance company. Each insurer uses its own method to decide scores. However, the most common factors used include:

  • Length of credit history
  • Payment history
  • Amount of outstanding debt
  • Available credit
  • Monthly account balances
  • Amount of revolving credit versus the amount of loans
  • A high number of credit inquiries

What is a good auto insurance score?

Each company uses different standards to determine insurance scores. However, many experts suggest you stay in the mid-700s and above range. According to most agents, a bad insurance score would be anything below 500.

Rate methodology

To find the best car insurance companies for people with bad credit, we compared rates from several insurers for an employed 30-year-old male driver in Texas with a 2012 Honda Accord LX. Our rate profiles have a clean driving record and includes 100/300/100 coverage. Credit scores were compared from ZIP codes throughout Texas.

Related Articles

We want to recommend to you some featured articles related to credit management, credit score, and debt settlement.

We study which are the credit scoring models available, the differences between chapter 7 and chapter 13 for bankruptcy, an analysis of the application of chapter 12, what is APR and how it is calculated, options available when you cannot pay your debt, and the debt snowflake method.

We have reviews of Accredited Debt Relief and Pacific Debt.

We discuss debt consolidation vs credit counseling, secured vs unsecured debt, and being sued by the debt collector.

We analyze if having a corporate card can affect credit score, how to settle credit card debt, and we discuss if your credit score has an influence on car insurance. We also deal with a strange line item “national credit cards airlines”.

About student loans, what happens if you do not pay your student loan, and how do student loans affect credit score.

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Author D Laidler

I am David, economist, originally from Britain, and studied in Germany and Canada. I am now living in the United States. I have a house in Ontario, but I actually never go.  I wrote some books about sovereign debt, and mortgage loans. I am currently retired and dedicate most of my time to fishing. There were many topics in personal finances that have currently changed and other that I have never published before. So now in Business Finance, I found the opportunity to do so. Please let me know in the comments section which are your thoughts. Thank you and have a happy reading.

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