Does Your Credit Score Affect Your Car Insurance?


WRITTEN BY: Julia Matseikovich

UPDATED: SEPTEMBER 14, 2022 | 2 MIN READ

Wondering if your credit score affects your car insurance rates? If you have a great credit score, it leads to cheaper car insurance rates. You might not be aware that it is a significant rating factor used by car insurance companies. The difference between someone with a poor and excellent credit score is about $1500 per year.

Do Insurance Companies Use Your Credit Score?

Absolutely. Looking for cheap car insurance with terrible credit is almost impossible. Drivers with a poor credit history typically pay $105 more per month for car insurance than people with good credit. It’s certainly an incentive to get your credit score higher.

Why do car insurance companies use your score?

Many factors come into play to determine the risk that you might present. For example, car insurance companies use your credit score because the Federal Trade Commission data has deduced that drivers with poor credit file more claims than drivers with excellent credit.

Also, the drivers with bad credit who file claims tend to have higher payouts than people with excellent credit. So, statistically, it’s cheaper to insure drivers with great credit than for drivers with poor credit.

When don’t car insurance companies use your score as a rating factor?

Certain states don’t allow car insurance companies to use credit scores to determine risk. For example, as of 2021, Massachusetts, California, and Hawaii don’t allow car insurance companies to rate customers based on credit scores, so in those states, you can get car insurance without a credit check. In any other state, however, they are allowed to use it.

How does your score affect your premium?

It can affect your car insurance rate because insurance companies consider bad credit as a negative risk factor. Studies show that people with bad credit file more claims than drivers with good credit. The payouts are also more expensive. Any time an insurance company sees potential risk, it will raise the premium cost.

How much does your score affect your rates?

Credit scores make a noticeable difference in insurance prices, and most insurance companies factor them into your premiums.

Five factors of the most important factors include:

  • Payment history: 35%
  • Amount owed: 30%
  • Length of credit history: 15%
  • Credit mix (having multiple types of credit): 10%
  • New credit: 10%

Does getting an insurance quote affect your credit score?

Getting a car insurance quote shouldn’t affect your credit score. The credit check used to get a quote is called a “soft pull.” It’s the “hard pull” that affects your credit score.

  • Soft pull: Only verifies basic information without impacting your credit score.
  • Hard pull: Provides entire credit history and lowers your credit score for a while.

Comparing Car Insurance Rates By Credit Score

Your credit score will affect your car insurance rate. Your credit score is not directly related to your driving, but insurance companies believe your credit score shows what kind of a customer you are likely to be. That’s why average auto insurance rates are based on them.

Average car insurance rates for drivers with poor credit

Drivers with poor credit pay an average of $209 per year. That’s roughly $2,500 per year or 77% higher than a driver with good credit.

Average car insurance rates for drivers with fair credit

Drivers with a “fair” credit score receive $283 less than average rates. However, you still have elevated rates with “fair” credit. On average, fair credit drivers pay $1,128, $250 more than those with excellent credit.

Average car insurance rates for drivers with good credit

The more you improve your credit score, the better the car insurance premium rate you get. Someone with “good” credit (670-739) is still paying $200-plus more than a driver with excellent credit.

Average car insurance rates for drivers with excellent credit

Between “very good” and “great” credit is a difference of $275 in premium costs. Nationwide and Liberty Mutual are the best companies to get that pricing.

Average car insurance rates for drivers with excellent credit

For the top-tier credit scores, you receive $190 less per year than the group average. For example, a driver with exceptional credit will pay on average $1,000 per year, which is about $83 per month.

Car Insurance For Drivers With Good Credit

Studying insurance rates across the country, we found the companies with the best rates for customers with good credit. Below are the best rates for customers with good credit.

What car insurance companies are best for drivers with good credit?

Drivers with good credit can usually find cheap car insurance. Nationwide offers the cheapest rates for good credit, with AAA and State Farm coming in second and third. Nationwide offers a monthly rate on average of $112.

How can drivers with good credit save money on car insurance?

You won’t pay as much with good credit as someone with bad credit, but you’re likely to pay more than you want. There are a few different ways to save on car insurance:

  • Only get the coverage you need. Cars depreciate every year, so make sure you don’t have coverage that you don’t need. It’s essential to make sure you aren’t over-insured.
  • Increase your credit score to get better rates. So not only are you getting better premium rates, but you are also benefiting your financial health.

Car Insurance For Drivers With Bad Credit

There are always insurance companies that offer rates for people that have bad credit. Unfortunately, it’s much more expensive than rates for people with great credit. 

What car insurance companies are best for drivers with bad credit?

Liberty Mutual is a car insurance company with reasonable options for customers with poor credit. They offer a premium of $474 less than the average major company. Typically, drivers with poor credit will pay $1,500 more than drivers with good credit. You should always shop around as your credit improves to get a better deal.

How can drivers with bad credit save money on car insurance?

Car insurance companies can offer discounts, but if you have bad credit, it’s not going to give you a good enough deal not to have to pay high prices. But by lumping as many discounts as possible, you can get the best deal.

Here are some ways to save money when you have poor credit:

  • Bundle your policies
  • Be a good driver and get a good driver discount
  • Go paperless
  • Organization membership discounts

FAQs

Do they run your credit score for car insurance?

No. It’s considered a “soft pull,” which means the insurance company is just acquiring basic information. 

What is an insurance score based on?

An insurance score is a key to determining the premium an individual pays for home, health, life, and car insurance. Companies determine an individual’s score using property claim databases such as Automated Property Loss Underwriting System.

Why do insurers use credit scores?

Insurers use credit scores because they believe it indicates whether a customer is a high risk or not. 

Which car insurance companies check your credit score?

Every state allows car insurance companies to check your credit score except Hawaii, California, and Massachusetts. 

Does changing insurance policies affect your credit score?

No. Changing insurance policies doesn’t affect your credit score. 

Finding Great Car Insurance Rates Regardless Of Your Credit

Whether you have good credit, bad credit, or credit somewhere in between, it’s a good idea to get at least three quotes before committing to a policy. Grab multiple car insurance quotes online now.