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Your credit score can impact many areas of your life–from your ability to borrow money to buying a home and even landing a job. In most states, your credit-based insurance score also impacts the cost of your car insurance. Drivers with excellent credit pay an average of $147 each month for coverage, but those with poor credit pay nearly double that–an average of $290 per month. Bankrate’s insurance editorial team’s extensive research could help you understand to what extent your credit score is impacting your current car insurance rates.
Why does credit affect car insurance rates?
It’s not your direct credit score that insurance companies look at, but rather your credit-based insurance score. Insurance companies use information from major credit bureaus to create your score, which helps them determine the risk that you will file claims. Depending on your score, your car insurance premium can be cheaper or significantly more expensive in states that allow the practice.
“When you apply for car insurance, the company checks your credit rating,” explains John Espenschied, owner of Insurance Brokers Group and an insurance expert with over 20 years in the industry. “If your score is low or if there is an indication that you might be living beyond your means, it may affect whether you get coverage at all.”
Like your driving record, your credit rating is a helpful tool for car insurance companies to use when assessing your risk as a driver. “Yes, most car insurance companies use credit scores as one of many factors affecting car insurance premiums,” affirms Adrian Mak, CEO of AdvisorSmith. “Other factors considered include driving history, claims history, ZIP code, vehicle type and many other factors.”
“Analysis of car crash data shows that credit scores can accurately predict the risk that a policyholder will crash or file a claim against a policy,” Mak adds. “Drivers with higher credit scores tend to get into fewer crashes and file fewer claims than those with lower scores.”
Therefore, the drivers who have higher credit scores are generally perceived as lower risk and are offered lower rates than drivers with lower credit scores.
What are credit-based insurance scores?
As we noted, car insurance companies often use your insurance score to quickly and easily identify the level of risk you might present as a policyholder. Auto insurance companies generally use this information to assess your risk and determine how likely you are to make timely payments or to file a claim.
“Credit-based insurance scores are a new way of calculating premiums,” comments Espenschied. “The most common credit score is the FICO score, and companies such as Fair Isaac Corp. use it to help calculate premium costs based on your driving history and risk assessment.”
A credit-based insurance score reviews your credit report to assess your risk in simple numerical form. This is usually a strictly credit-based identifier, so it does not include your current employment, income history or other personal details. Instead, it sticks mostly to your payment history and considers your total debt when assigning a score. An insurance company then translates that score into a metric of its own so that customer service agents cannot see your actual credit score.
How much will my car insurance cost based on my credit rating?
The national average cost of car insurance is $622 per year for minimum coverage and $2,014 per year for full coverage. However, depending on your credit score and other rating factors, your premium could be much higher or lower.
The average cost of auto insurance also varies based on your gender, although some states do not allow gender to be used as a rating factor. Males often pay more than female drivers, since men are more likely to get into accidents than women. The table below shows the average full coverage premiums for men and women with various credit tiers.
Average annual cost of full coverage car insurance by credit tier
|Poor credit||Average credit||Good credit||Excellent credit|
Your credit score is not the only factor that impacts your car insurance rate. Where you live can also be a significant factor.
Average cost of insurance by state and credit rating
Not all states use your credit score as a factor to determine car insurance rates, but most do. California, Hawaii, Massachusetts and Michigan have banned or restricted the practice of using credit scores to calculate car insurance rates. Maryland, Oregon and Utah also limit the use of credit as an auto insurance rating factor. In these states, there are regulations limiting how and when insurance companies can use credit as a rating and underwriting factor.
Unless you live in these states, your credit score will likely have an impact on your auto insurance premiums. But because geographic location also plays a role, the state you live in and even your ZIP code will also impact your premium.
“States have varying insurance premiums for a variety of reasons,” Mak explains. “The incidence of crashes in some states is higher than in others. Impacts are due to the mix of the ability of drivers in the state as well as road safety. Each state’s premiums are also affected by the court system and the cost of medical care in each state, with some states’ courts offering more generous awards and higher-cost medical care being drivers of higher premiums.”
Depending on where you live, this is how your credit could impact your full coverage auto insurance premium:
State Poor credit Average credit Good credit Excellent credit Alabama $3,270 $1,986 $1,843 $1,614 Alaska $2,697 $2,054 $1,946 $1,771 Arizona $3,258 $1,980 $1,810 $1,584 Arkansas $3,849 $2,113 $1,907 $1,610 California* $2,291 $2,291 $2,291 $2,291 Colorado $3,535 $2,304 $2,121 $1,756 Connecticut $2,900 $1,720 $1,553 $1,261 Delaware $3,522 $2,293 $2,103 $1,773 Florida $6,378 $3,607 $3,183 $2,673 Georgia $3,330 $2,229 $2,085 $1,843 Hawaii* $1,275 $1,275 $1,275 $1,275 Idaho $1,868 $1,218 $1,133 $1,016 Illinois $2,874 $1,930 $1,806 $1,550 Indiana $2,095 $1,394 $1,295 $1,125 Iowa $2,343 $1,459 $1,315 $1,135 Kansas $3,124 $2,024 $1878 $1,638 Kentucky $3,911 $2,349 $2,124 $1,807 Louisiana $5,532 $3,200 $2,909 $2,470 Maine $1,640 $1,019 $941 $842 Maryland $3,206 $2,139 $1,971 $1,700 Massachusetts* $1,262 $1,262 $1,262 $1,262 Michigan* $6,870 $3,027 $2,691 $2,073 Minnesota $3,287 $1,922 $1,760 $1,520 Mississippi $3,232 $1,936 $1,771 $1,544 Missouri $3,145 $2,085 $1,943 $1,637 Montana $3,002 $1,988 $1,889 $1,655 Nebraska $3,037 $1,795 $1,624 $1,376 Nevada $4,027 $2,945 $2,779 $2,480 New Hampshire $2,337 $1,407 $1,262 $1,021 New Jersey $3,211 $1,932 $1,754 $1,376 New Mexico $2,582 $1,679 $1,591 $1,410 New York $7,186 $3,497 $3,139 $2,581 North Carolina $1,813 $1,495 $1,446 $1,391 North Dakota $2,445 $1,461 $1,302 $1,089 Ohio $2,229 $1,375 $1,266 $1,062 Oklahoma $3,571 $2,171 $1,998 $1,748 Oregon $2,375 $1,541 $1,415 $1,241 Pennsylvania $2,915 $2,155 $2,040 $1,856 Rhode Island $3,085 $2,139 $1,886 $1,687 South Carolina $2,950 $1,675 $1,532 $1,251 South Dakota $3,288 $1,730 $1,553 $1,270 Tennessee $2,761 $1,601 $1,429 $1,231 Texas $3,304 $2,224 $2,019 $1,752 Utah $2,661 $1,644 $1,510 $1,277 Vermont $1,822 $1,166 $1,061 $949 Virginia $2,533 $1,565 $1,439 $1,195 Washington $1,468 $1,419 $1,410 $1,393 Washington, D.C. $3,337 $2,241 $2,072 $1,861 West Virginia $2,688 $1,733 $1,580 $1,348 Wisconsin $5,631 $1,442 $1,292 $1,076 Wyoming $2,583 $1,693 $1,582 $1,323
*These states ban or restrict the use of credit as a rating factor.
How to improve your credit score
There are a variety of situations that can negatively impact your credit score, from past-due bills to taking out a new loan. But your credit rating is not set in stone. There are ways that you can improve your credit score:
- Check your credit report: You are entitled to one free credit report per year. Checking your credit score may help you to catch potential downturns or issues before they become problematic.
- Make timely payments: Late payments will only work against you, further damaging your credit report. Making payments on time could begin to establish a long-term pattern that benefits your finances.
- Work on your credit utilization rate: When you have multiple credit cards that are all maxed out, it can negatively impact your credit score. An insurance provider could then worry that you are overextended financially and will be unable to make your insurance payments. It may be beneficial to pay down your outstanding debt so your debt-to-income ratio is below 30%.
- Take a break from new accounts: When you apply for a new loan or credit card, lenders often run inquiries that can damage your credit score. Instead, stick to the accounts you have and focus on paying those balances down so you can improve your overall debt-to-income ratio.
For most drivers in the U.S., credit score affects how much you pay for car insurance. If you are trying to lower your auto insurance premium, improving your credit score could result in long-term benefits.
Frequently asked questions
The best car insurance company will be different for each person, since multiple factors impact your car insurance rates. It’s generally a good idea to identify a few companies that interest you and request quotes from each for the same coverage types and levels so you can compare and decide what’s best for you.
There are several factors that impact your credit score beyond whether you make your payments on time. Other factors that impact your credit score include how many accounts you have, how long they have been open and how many recent inquiries you have on your account. Things like late payments, high outstanding balances and accounts in collection can all negatively impact your score.
Lenders may use one of two types of inquiry when running your credit. A hard inquiry (also known as a “hard pull” or a “hard check”) stays on your report permanently and can temporarily lower your credit score– these are often run for loan applications or utility enrollment. Soft inquiries, which commonly include insurance quotes and credit monitoring insurance, do not impact your FICO score.
The Fair Credit Reporting Act (FCRA) entitles each person to a free copy of their credit report each year. This allows you to review the report for any mistakes or inaccuracies that could harm your score. You can obtain your free credit report at AnnualCreditReport.com. If you see any inaccuracies, be sure to report them immediately to the appropriate credit bureau.
Bankrate utilizes Quadrant Information Services to analyze 2023 rates for ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a 40-year-old male and female driver with a clean driving record, credit status and the following full coverage limits:
- $100,000 bodily injury liability per person
- $300,000 bodily injury liability per accident
- $50,000 property damage liability per accident
- $100,000 uninsured motorist bodily injury per person
- $300,000 uninsured motorist bodily injury per accident
- $500 collision deductible
- $500 comprehensive deductible
To determine minimum coverage limits, Bankrate used minimum coverages that meet each state’s requirements. Our base profile drivers own a 2021 Toyota Camry, commute five days a week and drive 12,000 miles annually.
Rates were calculated based on the following insurance credit tiers assigned to our drivers: “poor, average, good (base), and excellent.” Insurance credit tiers factor in your official credit scores but are not dependent on that variable alone. The following states do not allow credit to be a factor in determining auto insurance rates: CA, HI, MA, MI.