Your Credit Score Could Be Steering Your Auto Insurance Costs—Here’s How

When it comes to car insurance, most drivers expect factors like driving history, age, and vehicle type to affect their premiums. But did you know your credit score might be quietly influencing how much you pay every month?

It’s true—many auto insurance companies use your credit-based insurance score as part of their pricing model. While not everyone agrees with the practice, it’s legal in most states and can have a significant impact on your rates.
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Let’s break down how your credit score affects your car insurance costs, why insurers use it, and what you can do to keep your premiums in check.

What Is a Credit-Based Insurance Score?
A credit-based insurance score is different from the traditional credit score used for loans and credit cards. It's a number that insurance companies use to help predict how likely you are to file a claim.

While every insurer uses its own formula, these scores are generally based on credit-related factors such as:

• Payment history (on-time vs. missed payments)
• Outstanding debt
• Length of credit history
• Credit utilization ratio
• Types of credit accounts
• Recent credit inquiries

It does not include your income, job status, or demographic information.


Why Do Insurance Companies Use Credit Information?
Insurance providers argue that there’s a statistical correlation between credit history and insurance risk. Studies have shown that people with lower credit scores tend to file more claims or incur higher claim costs.

Because of this, insurers use credit-based scores to help set rates. In general:

• Higher credit scores = lower premiums
• Lower credit scores = higher premiums

It’s not the only factor considered, but it can make a significant difference—sometimes hundreds of dollars per year.

How Much Can Your Credit Affect Your Insurance Rate?
According to studies by the Consumer Federation of America and The Zebra, a poor credit score can increase auto insurance premiums by as much as 50% to 100% or more, depending on the insurer and location.

For example:

• A driver with excellent credit might pay $1,000/year.
• The same driver with poor credit could pay $1,500–$2,000/year—even with a clean driving record.

States That Restrict or Ban the Use of Credit in Auto Insurance
Not all states allow insurers to use credit scores. As of 2024, the following states prohibit or limit the use of credit information for setting auto insurance rates:

• California
• Hawaii
• Massachusetts
• Michigan (restrictions apply)
• Washington (temporary bans in place at times)

Check with your state’s Department of Insurance to find out what rules apply where you live.


How to Improve Your Credit and Lower Your Insurance Costs
If your credit score is affecting your auto insurance premiums, don’t worry—there are steps you can take to turn things around:

• Pay bills on time – Your payment history has the biggest impact on your score.
• Keep credit card balances low – Aim to use less than 30% of your available credit.
• Avoid opening too many new accounts – Too many inquiries can lower your score.
• Check your credit reports for errors – Dispute inaccuracies with credit bureaus.
• Build a longer credit history – Over time, responsible credit use will improve your score.

Improving your credit score won’t just help with loans—it could lower your car insurance premiums too.
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What You Can Do as a Consumer

• Ask your insurance provider if and how your credit score affects your premium.
  
  
• Request a manual underwriting review – Some companies may consider individual circumstances if you’ve experienced a major financial hardship (like medical debt or job loss).
  
  
• Check for discounts – Good driver, low-mileage, multi-policy, and safe vehicle discounts can help offset credit-based pricing.

Final Thoughts: Know What Drives Your Rates
Your driving habits may be top-notch, but if your credit score is struggling, you could still be paying more for auto insurance than you need to. Understanding how credit affects your insurance premium gives you the power to take control of your rates and make informed decisions.

Whether you're building credit from scratch or recovering from past financial challenges, improving your score isn’t just good for your wallet—it could help you save hundreds on car insurance each year.

At Applegate Insurance, we strive to provide our clients with affordable and comprehensive policies. We will always go all out to satisfy your demands. To learn more about how we can assist you, don't hesitate to contact us at (540) 547-3733 or CLICK HERE ​to request a free quote.

Disclaimer: The information presented in this blog is intended for informational purposes only and should not be considered as professional advice. It is crucial to consult with a qualified insurance agent or professional for personalized advice tailored to your specific circumstances. They can provide expert guidance and help you make informed decisions regarding your insurance needs.​