What does your credit score have to do with insurance rates?

Asked by: Rene Wiegand DVM  |  Last update: August 7, 2023
Score: 4.4/5 (16 votes)

Your credit score is a key part of determining the rate you pay for car insurance. Better credit often gets you a better rate, and worse credit makes your coverage more expensive. Poor credit could more than double insurance rates, according to a nationwide analysis of top insurers.

How does your credit score affect your insurance rates?

Some states—including California, Hawaii, Washington, Massachusetts and Michigan—strictly limit or entirely prohibit insurance companies' use of credit information in determining auto insurance rates. In these states, your credit score won't affect your insurance rates no matter how good or bad it is.

Are insurance premiums based on credit score?

Understand How Credit and Other Factors Determine Your Premiums. In most states, insurers can use your credit-based insurance score to determine your premiums. Your credit-based insurance score is not the same as your regular credit score.

What is a good credit score for car insurance?

What, then, is a good credit score to get a car insurance policy with competitive prices? A score in the “good” range — between 670 and 739, according to the FICO scoring model — is generally considered to be the baseline for competitive pricing.

Do car insurance companies go by credit score?

While your car insurance policy will never impact your credit score, the opposite may be true. According to the National Association of Insurance Commissioners, 95% of auto insurance carriers use what's called a credit-based insurance score to calculate premiums in states where the practice is allowed.

How Your Credit Score Can Impact Your Insurance Rates

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How does bad credit affect insurance?

Insurance companies cite various studies finding that drivers with bad credit are more likely to file claims, which means these drivers pose a higher risk to them and are potentially more expensive to insure. The more risk and cost you pose, the higher your car insurance rates.

Does car insurance do a hard credit check?

No, there is no “hard credit pull” when you get a car insurance quote, so shopping around won't impact your credit score. A hard credit pull generally happens when you apply for credit, such as a mortgage or credit card.

What makes up your insurance score?

Your insurance score is calculated from your credit report to determine how expensive you are to insure. Your credit score is calculated from the same report but to determine how likely you are to go delinquent on a debt. Each uses overlapping variables, but the formula, outcome and purpose are all different.

How do I improve my insurance score?

While there's no quick fix for improving your insurance score, these tips can help better it over time.
  1. Get a credit report. ...
  2. Pay bills on time. ...
  3. Avoid opening too many credit accounts at once. ...
  4. Keep accounts open. ...
  5. Keep outstanding balances low. ...
  6. Stick with Say. ...
  7. What hurts your insurance score.

Do insurance companies run your credit for a quote?

Insurance companies do look at your credit score to determine your rate when they provide you with a quote. However, it is a “soft inquiry” on your credit report, which does not impact your score at all.

What information do insurance companies have access to?

Insurance companies will ask for personal information such as your Social Security number and birth date to confirm your identity. They may also want to know what your salary is because they might limit how much insurance you can get based on your annual earnings.

How can I lower my insurance premiums?

Here are some ways to save on car insurance1
  1. Increase your deductible.
  2. Check for discounts you qualify for.
  3. Compare auto insurance quotes.
  4. Maintain a good driving record.
  5. Participate in a safe driving program.
  6. Take a defensive driving course.
  7. Explore payment options.
  8. Improve your credit score.

Which FICO score do insurance companies use?

FICO, LexisNexis and other companies also create credit-based insurance scores. Similar to general credit scores, credit-based insurance scores are largely based on your credit report from one of the major credit bureaus—Experian, TransUnion or Equifax.

Does Progressive look at credit scores?

Do Progressive representatives see my credit report? No. Our software systems automatically request your credit report, so your Progressive representative does not see your credit report or know your insurance score.

What is a good credit score for home insurance?

A score of 770 or above is considered good and usually means insurers can offer better rates and discounts when they are allowed to factor in a credit-based insurance score. Anything below 500 means you have some work to do.

Is home insurance based on credit?

Your credit score plays an important role in the homeowners insurance premium you pay once you purchase a home. That's because insurance companies use information in your credit report to calculate an insurance score.

How do insurance companies use credit reports?

Companies are using credit in two ways: Underwriting - deciding whether to issue you a new policy or to renew your existing policy. Some state laws prohibit insurers from refusing to issue you a new policy or from nonrenewing your existing policy based solely on information obtained from your credit report.

Is insurance cheaper if your car is paid off?

No, paying off your car doesn't reduce your insurance rates, but it does give you more control over the type and amount of coverage you have, which can help you save money on your insurance rates.

What can affect your insurance premium?

Some factors that may affect your auto insurance premiums are your car, your driving habits, demographic factors and the coverages, limits and deductibles you choose. These factors may include things such as your age, anti-theft features in your car and your driving record.

What would cause an increase in insurance premiums?

There are some things that are outside of your control but could still affect your premium, including: rising repair costs, an increase in distracted drivers on the road, more drivers on the road, higher speed limits in your geographic area, and an increase in uninsured drivers.

Do insurance companies have access to bank statements?

Most policyholders are usually taken back when the insurance company asks for copies of their income tax returns, bank statements, bills, and other financial records.

Can you lie to insurance companies?

Lying to your insurance company can get you into big trouble. Even if the lie seems small, it's insurance fraud. You are knowingly deceiving your insurance company to benefit, which can result in jail time, fines, and license suspension. While changing your coverage to collision insurance is temptin, don't do it.

What should I not tell about car insurance?

Avoid using phrases like “it was my fault,” “I'm sorry,” or “I apologize.” Don't apologize to your insurer, the other driver, or law enforcement. Even if you are simply being polite and not intentionally admitting fault, these types of words and phrases will be used against you.

Why do insurance companies want your credit score?

Insurance companies check your credit score in order to gauge the risk they'll take to insure you. Studies have indicated that those with lower credit scores are likely to file more claims or have more expensive insurance claims, while those with higher credit scores are less likely to do so.

Should I let my insurance company do a credit check?

In Quebec, it's become common practice: when you're shopping around for automobile or home insurance, most insurers will ask for permission to look at your credit score. Know that you're free to refuse their request.