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Car insurance rates by credit score
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In most states, drivers with credit in good standing generally pay much less for car insurance than drivers with a poor credit history. According to 2023 rate data from Quadrant Information Services, drivers with excellent credit pay an average of $1,764 per year for full coverage car insurance. In comparison, drivers who fall into the poor credit category pay an average of $3,479 per year for the same coverage level — an average of 97 percent more. Bankrate is here to help you understand how credit can impact car insurance rates and potentially lower your premium by removing credit score roadblocks.
What to know first
- On average, drivers with poor credit pay 97 percent more for full coverage car insurance than those with excellent credit.
- California, Hawaii, Massachusetts and Michigan prohibit or limit the use of credit as a rating factor in determining auto insurance rates.
- Drivers with poor credit in New York pay the highest average rate for full coverage car insurance at $7,186 per year.
Why does your credit score affect car insurance rates?
When evaluating your credit history, insurance companies use what is called a credit-based insurance score. This score evaluates particular aspects of a consumer’s credit history to determine how likely they may be to have an insurance loss. While each insurer has its own proprietary underwriting system for calculating an insurance-based credit score, common factors that usually factor into this score include:
- Outstanding debt: This is the amount of debt you currently have.
- Credit history length: This shows how long you have had an open line of credit.
- Credit mix: This reflects different lines of credit, such as auto loans and credit cards.
- Payment history: This shows how well you have managed to pay your debts over time.
- Pursuit of new credit: This shows recent attempts to open new lines of credit.
What can I do to improve my credit score?
Your credit score is likely an important part of your overall financial health. A high credit score may help you get approved for loans, qualify for lower interest rates or get a higher credit limit. If your credit score is not the best, there are ways that you may be able to improve it. Although it may take time, learning how to build credit and improving your credit score might help you to lower your car insurance premiums. If you are unable to find an affordable rate with a standard insurance provider, you might consider exploring quotes from a no credit check insurance company if one is available in your state. Additionally, the following steps may help you improve your credit score.
Pay your bills on time
One aspect of a credit-based insurance score is your payment history. If you have a history of overdue bills and credit delinquencies, this could be an indication to companies that you do not manage your money well, which means you may not have the funds available to pay for small damages out of pocket. That, in turn, may lead to you filing more claims. Consistently paying your bills by the due date might help to increase your overall credit and insurance scores.
Keep hard credit inquiries to a minimum
Credit inquiries come in two forms: hard checks and soft checks. Whenever you apply for a line of credit, the company considering you as a customer will pull your credit report, which constitutes a hard inquiry and does affect your score. When insurance companies review your credit in the quoting process, that is considered a soft inquiry and shouldn’t have an impact on your actual credit tier. Too many hard inquiries can have a negative impact on your score. If you are trying to build your credit, you may want to consider waiting to apply for a loan or line of credit.
Monitor your score regularly
Monitoring your credit score may be beneficial in several ways. When you know your score, you may be able to more easily take steps to improve it. Regular reviews of your credit reports may also help you to identify inaccuracies or fraudulent activity. If you see anything suspicious, you might be able to take steps to dispute it.
Maintain old lines of credit
The simple act of keeping old credit card accounts open may help improve your credit score and credit-based insurance score. Length of credit history is worth between 15 and 20 percent of your credit score. Instead of canceling an unused credit card, you could consider keeping the utilization of the card low and making small on-time payments to help boost your credit score.
Be aware of your credit utilization ratio
In addition to the number of lines of credit you have, your credit utilization ratio will also impact your credit rating. Your credit utilization ratio is a measurement of how much credit you have available compared to how much you use. Although there is no set rule of how much of your credit you should be using, many finance professionals recommend that you utilize no more than 30 percent of your total available credit at any given time. If you are using more than 30 percent of your available credit, paying off some of your debt to bring your credit utilization score down may help improve your credit score and, in turn, your credit-based insurance score.
Frequently asked questions
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, good credit 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
Our base profile drivers own a 2021 Toyota Camry, commute five days a week and drive 12,000 miles annually.
These are sample rates and should only be used for comparative purposes.
Credit-based insurance scores: 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. Four states prohibit or limit the use of credit as a rating factor in determining auto insurance rates: California, Hawaii, Massachusetts and Michigan.