January 13, 2022

Credit Scores and Auto Insurance

How can your credit score impact your monthly premiums?

Share
Twitter brand
Facebook brand
Linkedin brand
Reddit brand
Envelop icon

Insurance companies determine rates using a variety of factors, from homeownership to age. One very important factor that could either increase or decrease your premiums is your credit score. Insurance companies use your credit score to determine your auto insurance score, but what’s the difference between the two? We’ll answer that and more in our guide to credit score and auto insurance in the United States.

How Do Credit Scores Affect Auto Insurance Rates?

If you have bad credit, can you get low auto insurance premiums? If you have a higher credit score, can you get a discount? How can your lack of student loans help you save money? We’ve got the answers in this auto insurance article.

Do Insurance Companies Check Your Credit?

Most insurance companies check credit scores, although some providers offer alternatives like usage or telematics-based insurance, which we’ll explain in more detail later. Credit scores help insurers determine an applicant’s risk and how likely they are to file claims.

In all but seven states, your credit score will be a factor — sometimes a major factor — in your auto insurance rates. However, not every state allows insurance providers to use credit scores to determine premiums.

  • Massacushetts, Hawaii, Michigan, and California: Insurance providers can’t take credit information into account at all.
  • Maryland: While insurance providers in Maryland can use credit history to determine rates, they can’t use it to deny initial applications, refuse to renew policies, cancel policies, or increase premiums during a renewal.
  • Oregon: Oregon has similar laws to Maryland in terms of how insurance providers can use credit history, but in Oregon, insurers can’t use credit history to determine “eligibility, rates or premiums for motor vehicle liability insurance.”1
  • Utah: In Utah, insurers can use credit in underwriting, but it can’t be the only factor. They also can’t use credit to cancel a policy, refuse to renew a policy, or decline coverage for a new vehicle once the customer has been covered for 60 days. While Utah insurers can use credit history to offer discounts, they can’t charge you more for bad credit, or change your discounts if your credit changes.2

Which Insurance Companies Don’t Use Credit Scores?

Many insurance providers offer policies that don’t depend on your credit scores. If you want a no-credit-check auto insurance quote, check out these programs based on usage or telematics, which is how safe of a driver you are.

  • Usage-based auto insurance providers: Allstate’s Milewise, Nationwide’s SmartMiles
  • Telematics-based auto insurance providers: Allstate’s Drivewise, Geico’s DriveEasy, Farmers’ Signal, Progressive’s Snapshot, State Farm’s Safe & Save

To learn more about these providers, read our Allstate review, Nationwide review, Progressive review, State Farm review, Geico review, or Farmers review.

Credit-Based Auto Insurance Scores

Most insurance companies calculate a credit-based auto insurance score to help determine your rates.

What Is an Auto Insurance Score?

Credit-based auto insurance scores, also called insurance scores, are three-digit confidential numerical ratings based either wholly or partially on your credit information.

How Auto Insurance Scores Work

Auto insurers use auto insurance scores, usually along with other factors, to price policies. People with low scores are more likely to file claims and vice versa, so the higher your auto insurance score is, the lower your premiums will be.

Credit Scores vs. Auto Insurance Scores

While credit and FICO scores are based on your credit report, which lending institutions use to determine your interest rates and loan qualifications, your auto insurance score determines how you manage your money. In other words, credit scores can predict credit delinquency, while insurance scores predict insurance losses specifically.3

How Auto Insurance Scores Are Calculated

Providers calculate auto insurance scores based on five factors from your credit report.

Factor Percentage of insurance-based score
Payment history 40%
Outstanding debt 30%
Length of credit history 15%
Pursuit of new credit 10%
Types of credit you have 5%

The ideal person to insure is someone with no late payments or outstanding debt, a long credit history, no collections or bankruptcies, and many good-standing accounts.4

Why Insurance Companies Use Auto Insurance Scores

Insurance companies use auto insurance scores to determine how likely you are to file a claim, or how much money the company will lose on you. People with low auto insurance scores are more likely to file claims than people with good auto insurance scores, so the former group has higher premiums to cover these potential losses.

How Auto Insurance Scores Can Benefit You

If you have a good auto insurance score, that could decrease the cost of your premiums.

How to See Your Auto Insurance Score

To see your auto insurance score, you’ll have to request your Consumer Disclosure Report from LexisNexis online, by mail, or over the phone.

Method Contact information
Online https://consumer.risk.lexisnexis.com/request
Phone 866-897-8126
Mail Download form at https://consumer.risk.lexisnexis.com
/img/LexisNexis_Report_Request_Form.pdf and mail to:

LexisNexis Risk Solutions Consumer Center

P.O. Box 105108

Atlanta, GA 30348-5108

What Is a Good Auto Insurance Score?

A good auto insurance score is in the 776-997 range, according to Progressive.5

Quality Range
Good 776-997
Average 626-775
Below average 501-625
Poor 200-500

How to Improve Your Auto Insurance Score

If your auto insurance score is under that range, you can improve it by taking the following actions:

  • Park in a garage.
  • Don’t drive late on the weekends.
  • Check your tire tread regularly.
  • Pay your bills on time.
  • Use your credit cards.
  • Have a good credit mix of a mortgage, auto loan, credit cards, etc.
  • Don’t open multiple lines of credit in a brief time period.
  • Check your garage for frayed wires or electrical cords.
  • Secure your garage with a security system.
  • Make sure your driveway isn’t icy.

Extraordinary Life Circumstances

Extraordinary life circumstances like serious illnesses, the death of a spouse, military deployment, or job losses can affect your credit score. However, many insurers won’t take these changes into account if you’ve experienced something catastrophic, like losing a child.6

Identity Theft

According to the Fair Credit Reporting Act, you have the right to get a free copy of your credit report annually from the three major credit reporting bureaus: TransUnion, Experian, and Equifax. Note that these bureaus may have different credit scoring models, so your score could be different with each bureau.

If you’ve received your credit report and you see hard inquiries you don’t recognize, that may be because lenders have sent your information to multiple companies to find the best terms. But if you haven’t applied for a car loan recently, unfamiliar information on your credit report could be a sign of fraud.

TIP

To report fraud, go to IdentityTheft.gov or call 877-438-4338.

Other Factors That Affect Auto Insurance Rates

There are many other factors that affect car insurance costs. See what affects the average cost of auto insurance:

  • Age
  • Auto insurance company
  • Auto repair costs, which differ by state. For example, California had the highest average total car repair cost in 2019 at $414.24, while Vermont had the lowest at $324.14.7 Higher auto repair costs mean higher reimbursements from auto insurance providers, so they take these costs into account when determining both premiums and deductibles. Learn more about how deductibles work and how they can determine the monthly cost of your auto insurance. Hint: Lower deductibles mean higher premiums, and higher deductibles mean lower premiums.
  • Coverages
  • Credit score
  • Driving record
  • Gender
  • How often and how far your drive
  • Marital status
  • Medical/legal costs
  • Owning vs. leasing car
  • Per capita disposable income
  • Population density
  • Rate and form filing laws
  • State, as states have different auto insurance requirements for coverages like property damage liability, bodily injury liability, uninsured/underinsured motorist coverage, comprehensive coverage, and collision coverage.
  • Traffic density
  • Type of vehicle, make, and model, as each vehicle has a vehicle safety rating based on data from customer claims and industry safety reports. Cars are valued based on how susceptible they are to theft, injury, and damage, with safer vehicles getting lower premiums and less safe ones getting higher premiums.
Vehicle type Annual average cost of full-coverage insurance
2020 weighted average $1,202
Small sedan $1,342
Large sedan $1,264
Medium sedan $1,245
Half-ton/crew pickup (42D) $1,242
Electric vehicle $1,227
Hybrid vehicle $1,212
Medium SUV (4WD) $1,118
Minivan $1,096
Small SUV (FWD) $1,0878
  • Underwriting and loss adjustment expense
  • Use of telematics

DID YOU KNOW?

Auto insurance costs are higher for those under the age of 25, as they are more likely to get into collisions. Learn more about the cost of auto insurance for teens.

Credit Inquiries

Credit inquiries are not all created equal. While hard inquiries affect your credit score, soft inquiries do not.

Does Getting a Car Insurance Quote Affect Your Credit?

Before choosing an auto insurance provider, most people compare auto insurance quotes. Whether you’ve requested an auto insurance quote online or gotten a free auto insurance quote from a local agent, will getting auto insurance quotes ruin your credit?

The answer is no, getting an auto insurance quote won’t hurt your credit because it’s a soft inquiry. Let’s go into the difference between the types of credit inquiries.

Types of Credit Inquiries

There are two types of credit inquiries: hard and soft.

  • Hard: Lenders perform hard credit inquiries after you’ve applied for a loan, affecting your overall credit score.
  • Soft: A soft inquiry, on the other hand, means that someone merely requested a copy of your credit report or checked your credit score; that person could’ve been you, or one of your current lenders. However, your prospective lenders won’t be able to see your credit reports, so soft inquiries don’t affect your credit score.9

How Often to Request Credit Inquiries

If you’re shopping for a new auto insurance provider, it’s likely that multiple lenders will make multiple inquiries about your credit. However, if these inquiries are all within a certain period of time, like 14 to 45 days, then they’ll count as one inquiry. Just try not to have any other inquiries made longer than that period so as not to affect your credit further.

How to Improve Your Credit Score

Even though auto insurance for people with bad credit exists, you should still be trying to improve your credit score to lock down lower rates. Here are some ways you can improve your credit score:

  • Pay your bills on time.
  • Dispute any inaccurate information on your credit report using the below contact information.
Credit bureau URL Phone number Mailing address
Equifax www.ai.equifax.com/CreditInvestigation 866-349-5191 Equifax Information Services LLC

P.O. Box 740256

Atlanta, GA 30348

Experian https://usa.experian.com/registration/?offer=at_fcras102,at_ltdreg100&phx=disable 888-397-3742 Experian

P.O. Box 4500

Allen, TX 75013

TransUnion https://dispute.transunion.com 800-916-8800 TransUnion LLC, Consumer Dispute Center

P.O. Box 2000

Chester, PA 19016

  • Limit your requests for new credit lines.
  • Make any outstanding payments, from oldest to newest.
  • Pay your debt, including any overdue credit card balances where you’ve gone over your credit limit.

How to Lower Car Insurance Rates

Aside from improving your credit, here are some other ways to lower your car insurance rates:

  • Take advantage of any auto insurance discounts that your provider offers. From top providers, we’ve seen discounts for:
    • Annual policies
    • Multi-family policies
    • Multi-vehicle policies
    • Automatic billing
    • Paperless billing
    • Accident-free driving
    • Defensive or safe driving courses
    • Driver training
    • Safe driving history and habits
    • Early signings or quotes
    • Federal employees
    • Students with good grades
    • Homeownership
    • Hybrid or electric vehicles
    • Military or veterans
    • Good payers
    • Teen driver monitoring through GPS
  • Increase your deductible, which will lower your premiums.
  • Bundle your insurance with another type of insurance, like homeowners insurance.
  • Drop coverage that you don’t need; for example, an older car may not need comprehensive or collision coverage.

Recap

Credit scores, while important, usually aren’t the only determining factor in the cost of your auto insurance premiums. However, it’s definitely better to have good credit than bad when it comes to auto insurance quotes. To learn more, read our FAQs section below, which answers the questions we get the most about how credit scores relate to auto insurance.

Frequently Asked Questions

Thirsty for more credit-based auto insurance knowledge? We’ve got it covered.

What is a good credit score for car insurance?

A good credit score for car insurance is around 700 or higher.

Does your credit score affect car insurance?

In most states aside from Massachusetts, Hawaii, Michigan, California, Maryland, Oregon, and Utah, yes, your credit score can affect your car insurance. Insurance providers give each applicant a credit-based auto insurance score that takes into account information from their credit reports. Here are some examples:

  • Outstanding debt, like any old credit card balances
  • Credit mix
  • Pursuit of new credit
  • Payment history
  • Length of credit history, or how long they’ve been building credit

Do you need a credit score to get car insurance?

In most states except Massachusetts, Hawaii, Michigan, California, Maryland, Oregon, and Utah, you probably need a credit score to get car insurance. However, there are programs that don’t require credit scores and instead use applicants’ usage or telematics data from providers like Allstate, Nationwide, and Geico.

Do insurance companies run credit checks?

Most insurance companies run credit checks, except in the states where it’s banned, like Massachusetts, Hawaii, Michigan, and California. However, many national providers offer programs that don’t take credit into account, so if you don’t want an insurance company to check your credit, look for usage-based or telematics-based insurance.

Citations

  1. Senate Bill 173. Oregon Legislature. (2021).
    https://olis.oregonlegislature.gov/liz/2021R1/Downloads/MeasureDocument/SB0173/Introduced

  2. Which States Restrict the Use of Credit Scores in Determining Insurance Rates? Experian. (2020, Sept 23).
    https://www.experian.com/blogs/ask-experian/which-states-prohibit-or-restrict-the-use-of-credit-based-insurance-scores/

  3. Does Your Credit Score Affect Your Car Insurance Rate? Allstate. (2020 July).
    https://www.allstate.com/tr/car-insurance/does-credit-score-affect-car-insurance.aspx

  4. Background on: Credit scoring. Insurance Information Institute. (2022).
    https://www.iii.org/article/background-on-credit-scoring

  5. What is an insurance score? Progressive. (2022).
    https://www.progressive.com/answers/insurance-score/

  6. Credit-Based Insurance Scores Aren’t the Same as a Credit Score. Understand How Credit and Other Factors Determine Your Premiums. National Association of Insurance Commissioners. (2020, July 22).
    https://content.naic.org/article/consumer_insight_creditbased_insurance_scores_arent_same_credit_score_understand_how_credit_and_other_factors.htm

  7. 2020 State Repair Cost Rankings. CarMD. (2020, July).
    https://www.carmd.com/wp/vehicle-health-index-introduction/2020-carmd-state-index/

  8. YOUR DRIVING COSTS. AAA. (2020).
    https://newsroom.aaa.com/wp-content/uploads/2020/12/2020-Your-Driving-Costs-Brochure-Interactive-FINAL-12-9-20.pdf