When shopping for car insurance, many drivers focus primarily on factors such as their driving record, the type of vehicle they drive, and the coverage options they choose. However, one often-overlooked factor that can significantly influence your car insurance rates is your credit score. While it may seem unrelated, insurers use your credit score as an indicator of your financial responsibility and risk level. Drivers with higher credit scores are typically seen as lower risk and may qualify for lower premiums, while those with lower credit scores often face higher rates.
In this article, we’ll explore the connection between your credit score and car insurance rates, how insurers use your credit information, the impact of a poor credit score, and what you can do to improve your credit score to lower your premiums.
How Does Your Credit Score Affect Car Insurance Rates?
Insurance companies have long relied on credit scores as a way to predict the likelihood of a person filing an insurance claim. The reasoning behind this is based on statistical evidence that shows a strong correlation between financial responsibility and driving habits. Essentially, those who manage their finances well (evidenced by a good credit score) are also less likely to engage in risky behaviors on the road, such as speeding or not maintaining their vehicles.
Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness. Insurers use a version of your credit score known as an “insurance score,” which is a modified version of your traditional credit score. While your traditional score is used for lending decisions, your insurance score helps determine the likelihood that you’ll file a claim and how much of a risk you are to the insurer.
How insurance companies use credit scores:
- Higher credit score = Lower risk: People with higher credit scores are often viewed as more responsible and less likely to make claims, which results in lower premiums. These individuals typically receive better rates because they are considered less risky.
- Lower credit score = Higher risk: On the other hand, individuals with lower credit scores are seen as higher-risk drivers. Insurers may charge higher premiums to account for the increased likelihood of filing claims or making late payments on their policies.
While it’s not the only factor considered, a poor credit score can lead to a significant increase in car insurance premiums. Insurers use the credit score as one of many criteria to calculate your rates, along with factors like your driving record, age, gender, location, and the type of car you drive.
Why Do Insurers Use Credit Scores?
The use of credit scores in determining car insurance rates may seem confusing at first, but it’s grounded in statistical analysis. Studies have shown a clear link between lower credit scores and an increased likelihood of filing claims, particularly for small claims. Insurers view individuals with poor credit as riskier customers who may be more likely to cause accidents, engage in reckless driving, or even fail to pay their premiums.
Several factors contribute to why people with lower credit scores are considered higher-risk by insurers:
- Financial Instability: People with poor credit are often seen as financially unstable. This may translate to a greater likelihood of risky behavior on the road, such as driving without insurance or maintaining an unreliable vehicle.
- Higher Likelihood of Filing Claims: Data suggests that people with lower credit scores tend to file more claims, even if they are small or non-collision related. This may be due to financial constraints leading to neglect in vehicle maintenance, which can increase the likelihood of accidents.
- Delayed Payments: A person with poor credit may have a history of paying bills late, including insurance premiums. This behavior signals to insurers that they may be more likely to miss payments on their car insurance in the future.
The Impact of Poor Credit on Car Insurance Rates
If you have a poor credit score, you might face higher car insurance premiums. The exact amount can vary depending on the insurer, but studies have shown that drivers with low credit scores could pay anywhere from 20% to 50% more for car insurance than those with excellent credit.
- Drivers with Poor Credit: Those with poor credit (typically a score below 580) could see their premiums significantly increase. Insurers may view them as higher risk and charge them more to compensate for that perceived risk.
- Drivers with Fair or Average Credit: Individuals with average credit scores (around 600-650) will likely pay more than those with excellent credit, but not as much as those with poor credit. However, there is still a noticeable difference in rates between those with average and excellent credit.
- Drivers with Good Credit: Those with good credit (above 700) are often able to secure the best car insurance rates. Insurance companies see them as financially responsible, which means they’re less likely to file claims and more likely to pay their premiums on time.
While a poor credit score can raise your car insurance costs, there are still ways to lower your rates by improving other factors like your driving record, choosing higher deductibles, and taking advantage of discounts.
States That Do Not Use Credit Scores for Insurance
It’s important to note that not all states allow insurers to use credit scores when setting car insurance rates. As of 2025, the following states have banned the use of credit scores in determining car insurance premiums:
- California
- Hawaii
- Massachusetts
- Michigan
- Washington, D.C.
In these states, insurers are prohibited from considering your credit score when calculating your rates, so if you live in one of these regions, your credit score won’t impact your car insurance premiums. However, in most states, insurers can use credit scores as one of several factors in determining your rates.
How to Improve Your Credit Score and Lower Your Premiums
Improving your credit score can take time, but it’s one of the best ways to lower your car insurance premiums in the long run. Here are a few steps you can take to improve your credit score and, ultimately, reduce your car insurance rates:
- Pay Bills on Time: Your payment history is a key factor in your credit score. Make sure to pay all your bills, including credit card payments, loans, and insurance premiums, on time to improve your score.
- Reduce Credit Card Balances: Keeping your credit utilization ratio (the amount of credit you’re using compared to your total available credit) below 30% can help improve your score. Pay down credit card balances and avoid maxing out your cards.
- Avoid Opening New Credit Accounts: Each time you open a new credit account, it can lower your credit score temporarily. Avoid opening new lines of credit unless absolutely necessary.
- Check Your Credit Report for Errors: Sometimes, your credit report may contain errors that are negatively affecting your score. Regularly check your credit report for mistakes and dispute any inaccuracies you find.
- Settle Any Outstanding Debts: If you have any outstanding debts in collections, try to settle them. While it may not immediately improve your credit score, settling debts can help reduce the negative impact on your credit report.
- Consider Credit Counseling: If you’re struggling to improve your credit, consider seeking help from a credit counseling service. They can guide you on how to manage your finances better and work towards improving your credit score.
Other Ways to Lower Your Car Insurance Rates
Even if your credit score is lower than you’d like, there are still other steps you can take to reduce your car insurance premiums:
- Maintain a clean driving record: Safe driving and avoiding traffic violations or accidents will help keep your rates lower, even if your credit score is not perfect.
- Increase your deductible: Raising your deductible can reduce your monthly premium, but be sure you can afford the higher out-of-pocket costs in the event of a claim.
- Look for discounts: Many insurers offer discounts for factors like good driving behavior, bundling multiple policies, or installing anti-theft devices. Ask your insurer about potential discounts you may qualify for.
Conclusion
Your credit score is an important factor in determining your car insurance rates, as it serves as an indicator of your financial responsibility and risk level. While drivers with good credit tend to enjoy lower premiums, those with poor credit may face higher rates. However, improving your credit score over time can help lower your premiums. Additionally, comparing quotes, maintaining a clean driving record, and exploring discounts are other ways to ensure you’re getting the best deal on your car insurance, regardless of your credit score. By taking steps to improve your financial health, you can save money not only on your insurance but also in other areas of your life.