How is Car Insurance Affected by Your Credit Score?
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.Read full bio
At a Glance
Your credit score greatly influences how much you pay for car insurance. Insurance carriers often check your credit score when you start a policy and then continue to monitor it periodically to adjust the cost of your premium. In general, having a higher credit score makes you look more reliable and less likely to make a claim, leading to lower premiums and cheaper insurance. Conversely, those with poor scores will pay more for car insurance because they are considered higher-risk borrowers. Ultimately, practicing good financial measures like regularly paying bills on time can mean better car insurance rates for drivers.
In this article, you’ll learn:
- Do car insurance companies look at credit scores?
- Why does your credit score affect car insurance?
- Impact of credit score on car insurance by state
- How does poor credit affect insurance?
- How can you lower car insurance rates with poor credit?
- Which car insurance companies don’t check credit reports?
is the average credit score needed to buy a car, according to Investopedia.
Do car insurance companies look at credit scores?
Many car insurance companies look at credit scores when determining insurance rates for their customers. Generally, people with higher credit scores are considered less risky to insure and may receive lower insurance rates, while people with lower credit scores may be seen as riskier and may receive higher insurance rates.
It’s important to note that not all insurance companies use credit scores to determine rates, and some states restrict how much weight can be given to credit scores in insurance underwriting. Additionally, credit scores are just one of many factors that insurance companies may consider when determining rates, and different insurers may weigh these factors differently. If you have concerns about how your credit score may impact your insurance rates, it’s a good idea to shop around and compare quotes from multiple insurers to find the best rate for your specific situation.
Why does your credit score affect car insurance?
Your credit score can affect your car insurance because studies have found that people with lower credit scores are more likely to file claims and are more likely to have a history of missed payments, which can make them appear riskier to insurance companies. On the other end, people with higher credit scores are usually less likely to file claims and are more financially stable.
In order to minimize their risk and avoid losses, insurance companies use a variety of factors to determine insurance rates, including driving record, age, gender, location, and credit score. Insurers may also use proprietary algorithms and data analysis techniques to help identify patterns in the data and predict which customers are more likely to file claims or have accidents.
Impact of credit score on car insurance by state
The impact of credit score on car insurance rates can vary depending on the state in which you live. In some states, insurers are not allowed to use credit scores to determine insurance rates. In other states, insurers may use credit scores but are subject to restrictions on how much weight they can give to credit scores. Here is a brief overview of the impact of credit score on car insurance by state:
- California: Insurers are not allowed to use credit scores as a factor in determining insurance rates.
- Hawaii: Insurers are not allowed to use credit scores as a factor in determining insurance rates.
- Massachusetts: Insurers are not allowed to use credit scores as a factor in determining insurance rates.
- Michigan: Insurers can use credit scores, but they must also use other factors, such as driving record and number of miles driven, to determine insurance rates.
- New York: Insurers can use credit scores, but they must also use other factors, such as driving record and location, to determine insurance rates.
- Oregon: Insurers can use credit scores, but they must also use other factors, such as driving record and location, to determine insurance rates.
- Utah: Insurers can use credit scores, but they must also use other factors, such as driving record and location, to determine insurance rates.
It’s important to note that the impact of credit scores on car insurance rates can vary even within states that allow the use of credit scores. This is because insurers may use different algorithms and weighting methods to determine insurance rates and consider additional factors beyond credit scores.
How does poor credit affect insurance?
Poor credit can affect car insurance in several ways:
- Higher insurance rates: People with poor credit scores may be considered riskier to insure and, therefore, may be charged higher insurance rates than those with higher credit scores.
- Limited coverage options: Some insurance companies may not offer coverage to people with poor credit scores or may limit the types of coverage available to them.
- Difficulty getting approved: People with poor credit scores may have a harder time getting approved for car insurance, particularly from standard insurers. They may need to look for coverage from non-standard insurers, which can be more expensive.
- Higher deductibles: Some insurers may require people with poor credit scores to pay higher deductibles in case of a claim.
How can you lower car insurance rates with poor credit?
If you have poor credit and are looking to lower your car insurance rates, here are some tips that may help:
- Improve your credit score: While it may take some time to improve your credit score, paying down debt and bills on time can help increase your score and potentially lower your insurance rates.
- Shop around: Don’t assume that all insurance companies will charge you the same rate. It’s a good idea to compare quotes from multiple insurers to find the best rate for your specific situation.
- Consider non-standard insurers: Some non-standard insurers specialize in providing coverage to drivers with poor credit or other risk factors. While the rates may be higher than those offered by standard insurers, they may be lower than those you would pay from a standard insurer if you have poor credit.
- Look for discounts: Many insurance companies offer discounts for things like bundling insurance policies, being a safe driver, or having safety features on your car. Be sure to ask your insurer about any available discounts that you may qualify for.
- Adjust your coverage levels: You may be able to lower your insurance rates by adjusting the levels of coverage you carry. However, be sure to carefully consider the potential risks of carrying lower levels of coverage and make sure you’re comfortable with the trade-off between lower rates and potentially greater risk.
- Pay in full: Some insurance companies offer a discount for paying your premium in full rather than making monthly payments.
Which car insurance companies don’t check credit reports?
Here are a few car insurance companies that may not check credit reports or use credit scores as a factor in insurance pricing:
- Geico: Geico is known for offering competitive rates and may not consider credit scores as a factor in determining insurance rates in some states.
- USAA: USAA primarily serves military personnel and their families and may not consider credit scores in determining insurance rates.
- The General: The General specializes in providing coverage to drivers with poor credit or other risk factors and may not consider credit scores in pricing insurance.
- Infinity Auto Insurance: Infinity Auto Insurance specializes in providing coverage to high-risk drivers and may not use credit scores in determining insurance rates.
- State Farm: While State Farm may consider credit scores in some states, they may not do so in others and also offer discounts for things like safe driving and anti-theft devices that may help offset any impact from credit scores.
It’s worth noting that insurance companies can change their underwriting practices at any time, so it’s always a good idea to check with a specific company to confirm whether or not they use credit scores in determining insurance rates.
According to Experian, one of the major credit reporting agencies, a good credit score for auto insurance typically falls within the range of 670 to 739. However, the specific credit score considered “good” for auto insurance may vary depending on the insurer and the state where you live. Some insurers may consider scores in the high 600s to be good, while others may require scores in the 700s for the best rates.
Related: What is a Good Credit Score?
If you want to improve your credit-based insurance score, there are several steps you can take:
- Check your credit report for errors: Your credit report may contain errors that could be hurting your credit score. Make sure to review your credit report regularly and dispute any errors.
- Pay bills on time: Late or missed payments can significantly impact your credit score. Make sure to pay all bills on time to help improve your score.
- Pay down debt: High debt levels can also impact your credit score. Focus on paying down any outstanding balances to help improve your score.
- Use credit responsibly: Using credit responsibly can help improve your credit score. Make sure to use credit cards and other forms of credit responsibly, paying off balances in full and not taking on too much debt.
- Keep credit accounts open: Keeping credit accounts open, even if they are not being used, can help improve your credit score by demonstrating that you have a longer credit history and more available credit.
- Avoid new credit applications: Opening new credit accounts can lower your credit score in the short term. Try to avoid opening new accounts unless absolutely necessary.
There are many factors that can affect car insurance premiums, including:
- Age and gender: Younger and male drivers tend to have higher insurance premiums than older drivers and female drivers.
- Driving record: Drivers with a history of accidents or traffic violations may have higher premiums than those with clean driving records.
- Vehicle type: The type of vehicle you drive can also affect your premiums. High-performance vehicles or luxury cars may have higher premiums due to their higher cost of repair or replacement.
- Location: Where you live can also impact your insurance premiums. Drivers in urban areas may pay more due to higher rates of accidents and theft.
- Coverage levels: The more coverage you have, the higher your premiums will likely be.
- Deductible: A higher deductible may lower your premiums, but you’ll have to pay more out of pocket if you have an accident.
- Credit score: As discussed earlier, credit score can also impact car insurance premiums in some states.
- Marital status: Married couples may qualify for lower insurance rates than single individuals.
- Occupation: Some insurance companies may offer lower rates for certain professions, such as teachers or nurses, who they consider to be lower-risk drivers.
- Annual mileage: The more you drive, the higher your premiums may be, as you are at a higher risk for accidents.