How does credit score impact your car insurance?

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Your credit score can impact various areas of your life, including your ability to rent an apartment or buy a home, secure a decent interest rate on a loan and even get some types of jobs. Knowing this, you may be wondering, “Does credit score affect car insurance rates?”

“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.”

To help illustrate how your credit score can impact car insurance rates, Bankrate used Quadrant Information Services to obtain up-to-date premium information. Our editorial team then analyzed the premiums to determine the average insurance rates by gender, credit tier and state. Before you buy your next auto insurance policy, you may want to understand how your credit can impact your premium.

Why does credit affect car insurance rates?

“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 drivingrecord, your credit rating is a helpful tool for car insurance companies to use when assessing your risk as a driver.

“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?

Many auto insurance companies will use what is known as a credit-based insurance score to quickly and easily identify risk among policyholders. 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.

Average annual premium by credit tier

The national average cost of car insurance is $565 per year for minimum coverage and $1,674 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. Males often pay more than female drivers, since men are more likely to get into accidents than women, although some states do not allow gender to be used as a rating factor. The table below shows the average full coverage premiums for men and women with various credit tiers.

Poor credit Average credit Good credit Excellent credit
National average $3,873 $1,865 $1,674 $1,487
Male $3,906 $1,873 $1,648 $1,495
Female $3,840 $1,856 $1,701 $1,479

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 tier

Not all states use your credit score to factor car insurance rates, but most do. California, Hawaii and Massachusetts have banned the practice of using credit scores to calculate car insurance rates. Additionally, “Maryland, Oregon, Michigan and Utah limit the use of credit information to a lesser degree,” adds Charlie Scanlon, attorney and President of Phoenix Credit Consultants.

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 $3,108 $1,900 $1,623 $1,540
Alaska $2,265 $1,730 $1,559 $1,497
Arizona $2,804 $1,764 $1,547 $1,423
Arkansas $3,461 $2,146 $1,914 $1,660
California* $2,114 $2,114 $2,065 $2,114
Colorado $3,321 $2,213 $2,016 $1,679
Connecticut $2,967 $1,794 $1,845 $1,344
District of Columbia $3,072 $2,062 $1,855 $1,711
Delaware $2,987 $1,954 $1,775 $1,509
Florida $5,817 $3,032 $2,364 $2,161
Georgia $3,143 $2,200 $1,982 $1,859
Hawaii* $1,217 $1,216 $1,127 $1,216
Idaho $1,748 $1,217 $1,045 $1,019
Illinois $2,622 $1,653 $1,485 $1,243
Indiana $2,621 $1,480 $1,254 $1,099
Iowa $2,365 $1,408 $1,260 $1,087
Kansas $3,165 $1,924 $1,698 $1,521
Kentucky $4,128 $2,533 $2,128 $1,934
Louisiana $4,630 $3,032 $2,724 $2,410
Maine $1,425 $913 $965 $765
Maryland $2,935 $1,958 $1,877 $1,565
Massachusetts* $1,271 $1,271 $1,223 $1,272
Michigan $6,209 $2,981 $2,309 $2,117
Minnesota $3,087 $1,822 $1,643 $1,445
Mississippi $2,685 $1,893 $1,782 $1,552
Missouri $2,829 $1,865 $1,661 $1,463
Montana $2,894 $1,913 $1,737 $1,560
Nebraska $2,862 $1,697 $1,531 $1,293
Nevada $3,275 $2,404 $2,245 $2,044
New Hampshire $2,174 $1,312 $1,275 $945
New Jersey $3,307 $1,979 $1,757 $1,384
New Mexico $2,534 $1,560 $1,419 $1,300
New York $4,876 $2,585 $2,321 $1,935
North Carolina $1,758 $1,451 $1,325 $1,352
North Dakota $2,388 $1,474 $1,264 $1,107
Ohio $2,075 $1,231 $1,034 $960
Oklahoma $3,024 $2,054 $1,873 $1,680
Oregon $2,288 $1,539 $1,346 $1,245
Pennsylvania $2,553 $1,791 $1,476 $1,507
Rhode Island $3,090 $2,132 $2,018 $1,664
South Carolina $2,775 $1,646 $1,512 $1,250
South Dakota $3,139 $1,896 $1,642 $1,422
Tennessee $2,416 $1,531 $1,338 $1,174
Texas $3,053 $2,106 $1,823 $1,663
Utah $2,369 $1,477 $1,306 $1,144
Vermont $1,873 $1,209 $1,207 $982
Virginia $2,300 $1,425 $1,304 $1,083
Washington $1,816 $1,318 $1,176 $1,054
West Virginia $2,635 $1,741 $1,499 $1,355
Wisconsin $5,440 $1,345 $1,186 $1,010
Wyoming $2,357 $1,567 $1,495 $1,229

*These states do not allow insurance companies to use 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 thirty percent.
  • 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

What factors impact my credit score?

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.

What is the difference between a hard inquiry and soft inquiry?

There are two types of inquiries that lenders may use when running your credit. A hard inquiry results in a permanent record on your credit score. A soft inquiry, on the other hand, does not affect your credit score. Applying for insurance policies counts as a soft inquiry — your credit score is reviewed but is not impacted by the act of getting auto insurance quotes.

Where can I see my credit report?

Under the Fair Credit Reporting Act (FCRA), you are legally entitled to a free credit report each year. Obtaining your free copy allows you to check the report for any mistakes or inaccuracies that could harm your score. If you see incorrect information on your credit report, be sure to report it immediately to the appropriate credit bureau so your credit score does not suffer.

Methodology

Bankrate utilizes Quadrant Information Services to analyze 2021 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. 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 2019 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.