How Credit Affects Your Insurance Rates: What You Need to Know

Key Takeaways

Most insurers use credit information to set premiums
Insurance scores are different from regular credit scores
Poor credit can significantly increase insurance costs
Some states ban or limit credit use in insurance
Improving your credit can lower insurance rates

How Insurance Companies Use Credit

Most auto and home insurance companies in most states use credit information as one factor in determining your premium. Studies have shown a correlation between credit history and the likelihood of filing claims.

Why Insurers Check Credit

Statistical correlation between credit and claims
Helps predict risk of filing claims
Used alongside other factors (driving record, location, etc.)
Helps segment pricing more accurately

Premium Impact Examples

Excellent credit: Lowest premiums
Good credit: +10-20% higher
Fair credit: +20-50% higher
Poor credit: +50-100%+ higher

Significant Cost Difference

A driver with poor credit may pay $1,500-2,000 more per year for auto insurance than an identical driver with excellent credit. Over several years, improving your credit could save thousands in insurance costs.

Credit Score vs. Insurance Score

Your credit-based insurance score is different from your regular FICO or VantageScore. Insurance scores are specifically designed to predict insurance risk, not creditworthiness.

Key Differences

Different scoring models: LexisNexis and FICO create insurance-specific scores
Different scale: Insurance scores may range from 200-997 depending on the model
Different factors: Some credit factors may be weighted differently
Same underlying data: Based on your credit report

Factors That Affect Insurance Scores

Payment history (most important)
Outstanding debt
Length of credit history
New credit applications
Credit mix

Soft Inquiry Only

Insurance credit checks are soft inquiries that don't affect your credit score. Insurance companies cannot see your full credit score— they receive their own insurance-specific score.

State Restrictions on Insurance Credit Use

Not all states allow insurers to use credit freely. Some have banned or restricted the practice:

States That Prohibit or Restrict Credit Use

California: Banned for auto insurance
Hawaii: Banned for auto insurance
Massachusetts: Banned for auto insurance
Michigan: Banned for auto insurance
Washington: Temporary ban enacted
Maryland: Restrictions on use
Oregon: Restrictions on use

Even in states that allow credit use, there are often regulations:

Must consider other factors beyond credit
Cannot use credit as the sole determining factor
May have to offer exceptions for certain circumstances
Must allow consumers to request re-evaluation

Improving Your Insurance Score

Since insurance scores are based on your credit report, the same good credit habits help both scores:

Steps to Lower Insurance Premiums

Pay all bills on time: Payment history is the biggest factor
Keep credit card balances low: High utilization hurts scores
Don't close old accounts: Length of history matters
Limit new credit applications: Too many inquiries can hurt
Dispute credit report errors: Inaccuracies may be affecting your insurance score

Other Ways to Lower Premiums

Shop around—different insurers weight credit differently
Ask about discounts (bundling, good driver, etc.)
Increase deductibles if you can afford them
Ask for re-evaluation after improving credit

Credit Errors Raising Your Insurance Rates?

Inaccurate credit information doesn't just affect loans—it can cost you hundreds in insurance premiums. Our platform helps identify and dispute errors.

Check Your Report Learn how it works

Frequently Asked Questions

Most insurers in most states use credit information to help determine premiums for auto and home insurance. They typically use a credit-based insurance score, which is different from your regular credit score.

Poor credit can increase insurance premiums by 40-100% compared to excellent credit. In some cases, the difference can be hundreds or even thousands of dollars per year.

Yes, insurance companies can't deny coverage based on credit alone. However, your premiums will likely be higher. Shopping around is important—different insurers weigh credit differently.

No. Insurance credit checks are soft inquiries that don't affect your credit score. You can shop around for insurance quotes without worrying about credit impact.

Yes, many insurers will re-evaluate your premium if your credit has improved. Contact your insurance company and ask for a credit re-score, especially after paying off debt or correcting errors.