Does credit score affect car insurance rates?
Yes, in most states, credit impacts your car insurance rates. All but a few states allow car insurance companies to consider credit scores when determining rates, which affects your rates. Drivers with poor credit often see significantly higher car insurance rates compared to those with good or excellent credit.
Insurers use your credit score to calculate your credit-based insurance score, which affects rates. Here's the difference:
| Credit score (FICO) | Credit-based insurance score |
|---|---|
| Used for credit cards and loans | Used only for insurance rates |
| Includes all of your credit and repayment history | Only looks at some aspect your credit history |
| Determines interest rates and loan qualification | Not related to loans or interest |
| Available to you to check | Private to the insurance company |
Your credit score, also known as a FICO score, is based on your credit usage and ability to repay loans, such as a mortgage or car loan. This score affects your interest rates and whether a lender is willing to offer you a loan. Therefore, it's crucial to check your credit score regularly to stay informed about your financial situation.
Your credit-based insurance score, which is derived from your credit score, considers your payment history and outstanding debts. However, it does not take into account your income or other personal characteristics.
Each insurer looks at your credit-based insurance score differently, so rates may vary significantly by insurer.
TIP
Keeping a good FICO score means a good insurance score; pay your bills on time and avoid too much debt to keep both scores healthy.
Why does credit score affect car insurance?
Insurance companies have found a correlation between credit scores and the frequency of car insurance claims. The premise is that:
- Drivers with low credit scores are more likely to file claims because they lack the financial resources to pay for vehicle repairs out of pocket.
- Drivers with higher credit scores may be able to pay for repairs themselves and avoid filing a claim.
“Insurers often use credit scores as a proxy for two types of risk: personal risk tolerance (higher scores tend to reflect greater risk aversion) and claims behavior (higher scores correlate with fewer claims),” said Michael He, senior director and insurance expert Simon-Kucher, a global consultancy firm. “While not exact for individuals, the correlation is strong enough to inform underwriting decisions.”
Opponents argue that a credit score has nothing to do with actually driving a vehicle. Unlike factors such as age, driving record, and vehicle, a low credit score does not necessarily reflect a person’s ability to drive safely and avoid accidents.
How does credit score affect car insurance?
Credit scores can significantly impact car insurance rates. Drivers with high credit scores typically receive much lower rates than those with low credit scores.
While your credit score affects car insurance rates, it isn’t the only factor that insurers use to calculate rates. Other factors, such as age, driving record, vehicle, and location, are also used to determine rates. However, credit-based insurance scores can have a greater impact than other factors, such as gender and marital status.
How much does credit score affect car insurance?
Each state has its own insurance rules in place regarding the use of credit, and each insurer weighs factors that affect rates differently. This means that how credit affects car insurance rates varies significantly from state to state and from one insurer to another.
For example:
- On average, GEICO policyholders in Alabama pay an extra $927 with bad credit, but drivers with Auto-Owners insurance pay an average of $4,024 more with bad credit.
- Compared to drivers with good credit, those with bad credit in Michigan pay an additional $1,236 with GEICO and $4,295 with Auto-Owners.
Choose your state from the table to find average rates based on credit score from insurers in your state. Keep in mind that California, Hawaii, Massachusetts and Michigan don’t allow insurers to use credit scores, and Maryland, Oregon and Utah have restrictions in place.
| Company | Average premium for good credit | Average premium for a bad credit | Dollar Difference |
|---|---|---|---|
| Progressive | $1,752 | $2,303 | $551 |
| GEICO | $1,818 | $3,482 | $1,663 |
| Allstate | $2,791 | $3,624 | $832 |
| Western National Insurance | $2,832 | $4,289 | $1,458 |
| State Farm | $2,523 | $9,321 | $6,798 |
| USAA | $1,575 | $2,993 | $1,419 |
How much does credit score affect car insurance by company?
Each company determines how much weight it will place on credit when determining rates, so there are big differences:
- State Farm rates are the most impacted by credit score, with a 336% increase for drivers with poor credit.
- Nationwide has the lowest rate impact with a 46% increase for drivers with poor credit.
The table below illustrates the impact of your credit score on car insurance rates from top insurers.
| Company | Average premium for good credit | Average premium for a bad credit | Dollar difference | Percentage difference |
|---|---|---|---|---|
| Nationwide | $2,463 | $3,594 | $1,131 | 46% |
| GEICO | $2,148 | $3,703 | $1,554 | 72% |
| Travelers | $2,103 | $3,998 | $1,895 | 90% |
| Erie Insurance | $1,906 | $4,281 | $2,375 | 125% |
| Progressive | $2,675 | $4,559 | $1,884 | 70% |
| Allstate | $3,205 | $5,335 | $2,130 | 66% |
| Auto-Owners | $2,051 | $5,599 | $3,549 | 173% |
| Farmers | $3,085 | $6,527 | $3,441 | 112% |
| State Farm | $2,874 | $12,536 | $9,662 | 336% |
| USAA | $1,572 | $3,134 | $1,562 | 99% |
Methodology
We partnered with Quadrant Information Services to field car insurance rates in all 50 states and Washington, D.C. Rates were gathered based on four credit tiers:
- Excellent
- Good
- Fair
- Poor
Unless otherwise indicated, averages are based on our full coverage data set. This data set is based on:
- Bodily injury liability of $100,000 per person and $300,000 per incident
- Property damage liability of $100,000 per incident
- Comprehensive and collision deductibles of $500
- 40-year-old driver
- Honda Accord LX
- A clean driving record
- 12-mile commute, 10,000 annual mileage
Learn more about our data and methodology.
FAQ: Does credit affect car insurance?
Do insurance companies run your credit for a quote?
Yes, most insurance companies perform a soft credit check when you request a car insurance quote. A soft credit check doesn’t hurt your credit score but allows insurers to get basic information.
Does credit score affect car insurance in Texas?
Yes, your credit score is one of the factors that affect car insurance rates in Texas. Other factors include age, driving record and vehicle.
What is a good auto insurance credit score?
Although different companies use different algorithms and ratings to create a credit insurance score, a score in the mid-700s is typically considered a good score. Note that your FICO score doesn’t directly correlate to your insurance score, but if you have a good FICO score, you also likely have a good insurance score.
What auto insurance companies do not use credit scores?
While most major insurers use credit scores to determine rates, a few do not. For example, Cure and Dillo don’t use credit scores, and some usage-based insurers, such as Root and Metromile, also don’t consider credit scores.
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