Credit Scores and Auto Insurance
If you have bad credit, you'll likely face higher than average car insurance rates. Find out how much higher, and why.
Insurance companies typically consider your credit score to set your auto insurance premiums. They use your credit score to determine your auto insurance score. The higher your auto insurance score is, the lower risk you likely are, and the lower your insurance rates may be. So, a bad credit score usually means higher insurance rates.
Unless you live in California, Hawaii, Michigan or Massachusetts, which ban the practice, your insurer will likely use this score to determine your rates. They use it to predict the likelihood of a customer filing a claim. This article covers everything you need to know about credit scores and car insurance, including:
- How your credit score influences your auto insurance rates
- How companies use your credit score to set premiums
- What is an auto insurance score?
How does your credit score affect auto insurance rates?
As your credit score increases, your annual car insurance rates tend to decrease. According to our data, having a “worst” credit score versus an “excellent” credit score can raise your annual insurance rates by 112%. Having an excellent credit score can lower premiums by $1,882 annually.
Drivers who don’t provide a credit score (categorized as “none”) are estimated to have a lower premium than those with bad credit scores. However, even if you don’t provide your credit score, your insurance company may analyze your credit score when you provide your Social Security number. Your final rates will then be calculated off that score combined with other factors like your driving record and location. For an accurate quote, provide your credit score when you first begin shopping for insurance.
Insurance companies and credit scores
Insurance companies weigh your credit score differently to determine your insurance premiums. How much your credit score impacts your insurance rates depends on your insurer. We compared rates and credit scores from major auto insurance companies in Texas:
|Credit rating||Allstate||GEICO||Nationwide||State Farm||USAA|
|Note: Average rates are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.|
Out of the major insurance companies we compared, we found that State Farm charges the highest increase from bad to good credit score, raising prices an average 191%. According to our data, Allstate has the lowest rates for a bad credit score, charging around $2,336 annually.
A clean driving record and good insurance score can lower your costs. Compare rates to see how much you can save with a good insurance score.
Why do car insurance companies check your credit score?
Insurers believe there is a connection between credit scores and the likelihood and number of insurance claims filed. So, they use a driver’s credit score to determine their insurance score. However, it’s a controversial practice. Arguments are made in support of drivers with poor credit. They may be more likely to file a claim because they lack the resources to pay for repairs on their own.
If insurers are able to charge more based on credit scores, it helps justify higher premiums. This has led some consumer advocates to label the insurance industry’s scoring practices as unfair. It helps those with good credit while negatively affecting low-income drivers who would benefit the most from lower rates.
Legislatures in California, Massachusetts, Michigan and Hawaii have laws that ban insurance agencies from using credit as a factor in determining car insurance rates. Some insurance companies don’t use credit as part of their underwriting process.
Do insurance quotes affect your credit score?
No, getting car insurance quotes won’t affect your credit score. Shopping for car insurance won’t lower your credit score in the same way applying for credit cards will. That’s because auto insurance companies don’t do a hard credit pull for car insurance quotes like credit card companies do.
What is an auto insurance score?
Auto insurance scores are credit-based scores that your auto insurance company calculates to determine how risky you are to insure, or how likely you are to file an insurance claim. Like a credit score, the higher your insurance score is, the better. If you have a good insurance score, your premiums should be lower.
How insurance scores are calculated
The criteria for calculating a consumer’s insurance score varies by insurance company. Each insurer uses its own method to decide scores. However, the most common factors used include:
- Length of credit history
- Payment history
- Amount of outstanding debt
- Available credit
- Monthly account balances
- Amount of revolving credit versus the amount of loans
- A high number of credit inquiries
What is a good auto insurance score?
Each company uses different standards to determine insurance scores. However, many experts suggest you stay in the mid-700s and above range. According to most agents, a bad insurance score would be anything below 500.
To find the best car insurance companies for people with bad credit, we compared rates from several insurers for an employed 30-year-old male driver in Texas with a 2012 Honda Accord LX. Our rate profiles have a clean driving record and includes 100/300/100 coverage. Credit scores were compared from ZIP codes throughout Texas.
QuoteWizard.com LLC has made every effort to ensure that the information on this site is correct, but we cannot guarantee that it is free of inaccuracies, errors, or omissions. All content and services provided on or through this site are provided "as is" and "as available" for use. QuoteWizard.com LLC makes no representations or warranties of any kind, express or implied, as to the operation of this site or to the information, content, materials, or products included on this site. You expressly agree that your use of this site is at your sole risk.