Yes, your credit score directly affects your car insurance rate
Most car insurance companies use your credit score to set your premium. A higher credit score typically means a lower rate; a lower score means you pay more. This is separate from your driving record — two people with identical accidents and tickets can pay different amounts based solely on credit.
Insurance companies call this practice credit-based insurance scoring. They argue that credit behavior predicts insurance claims: people who pay bills on time tend to file fewer claims. Whether you agree with the logic or not, the practice is legal in most states and used by the major insurers.
The impact varies. Some insurers weight credit heavily; others less so. A person with a 650 credit score might pay 50% more than someone with a 750 score at one company, or 20% more at another. Shopping around matters because different companies use credit differently.
Key Takeaways
- Insurance companies use credit scores to calculate rates, meaning a lower score raises your premium even if you have never had an accident.
- The relationship between credit and insurance rates is legal in most states, though California, Hawaii, and Massachusetts restrict or ban the practice.
- Different insurers weight credit differently, so comparing quotes from multiple companies can save you hundreds of dollars per year.
- Improving your credit score takes months or years, but disputing errors on your credit report can raise your score faster.
- Some insurers offer discounts unrelated to credit — safe driver programs, bundling, paying in full — that can offset a credit-based rate increase.
Which states restrict credit-based insurance scoring
Three states ban insurers from using credit scores entirely. California prohibits the practice. Hawaii and Massachusetts also do not allow it. If you live in one of these states, your credit score will not affect your car insurance rate.
A handful of other states limit how insurers can use credit. Connecticut requires insurers to give you a discount if your credit score improves during your policy period. Maryland restricts the use of credit for new customers but allows it for renewals. Michigan bans the use of credit scores for drivers under 25. Rules change, so contact your state's insurance commissioner's office if you want to confirm the current rule where you live.
In all other states, insurers can use credit as one factor in setting rates. They cannot use it as the only factor — driving record, age, location, and vehicle type all matter — but credit is part of the calculation.
How much your credit score actually changes your rate
The dollar difference depends on the insurer, your location, and your current score. A person moving from a 600 score to a 700 score might see a $10 to $30 monthly decrease at one company and a $5 to $15 decrease at another. Someone jumping from 700 to 800 might see a smaller change — the biggest gaps are usually between very low and moderate scores.
Age and driving record still matter more than credit in most cases. A 25-year-old with a clean record and a 650 credit score will usually pay less than a 45-year-old with a 750 score and a speeding ticket. But credit is not a minor factor — it can easily be the difference between $1,200 and $1,800 per year for the same coverage.
The only way to know your exact rate impact is to get quotes. When you request a quote, insurers pull your credit and calculate a rate based on that score plus your other information. Comparing three to five quotes shows you which companies weight credit heavily and which do not.
What counts as your "credit score" for insurance
Insurance companies do not use your standard FICO score from credit bureaus. Instead, they use a credit-based insurance score, which is a separate calculation built specifically for insurance pricing. It looks at similar information — payment history, debt levels, credit age — but weights them differently than a FICO score does.
You cannot see your insurance score the way you can see your FICO score. Insurers calculate it internally when you request a quote. However, improving the factors that go into a FICO score will improve your insurance score: paying bills on time, lowering credit card balances, and fixing errors on your credit report all help both scores.
Hard inquiries from insurance quotes do not hurt your credit. When an insurer pulls your credit for a rate quote, it is a soft inquiry that does not lower your FICO score. You can safely get multiple quotes without damaging your credit.
Steps to lower your rate if your credit is low
If your credit score is dragging up your insurance cost, you have two paths: improve your credit, or find an insurer that weights credit less heavily.
Improving your credit takes time. Start by getting a free credit report from annualcreditreport.com — the only official source for free reports. Look for errors: accounts you did not open, payments marked late that you made on time, or duplicate accounts. Dispute errors with the credit bureau in writing. Correcting errors can raise your score by 10 to 100 points within 30 to 60 days.
Beyond disputes, pay all bills on time going forward, even if past payments were late. Bring credit card balances below 30% of your limit. Do not close old credit cards — age of accounts matters. These steps take months to show results, but they work.
While your credit improves, shop for insurers that de-emphasize credit. Some regional and online-only companies weight driving record and safety features more heavily. Getting quotes from at least five different companies — including smaller regional ones — often reveals one that charges you significantly less. You may also find discounts for bundling home and auto, paying in full upfront, or completing a safe driver program.
What happens to your rate when your credit improves
When your credit score rises, your insurance rate does not automatically drop. You have to ask for a new quote or wait until your policy renews. At renewal, your insurer will pull an updated credit score and recalculate your rate. If your score improved, your new rate should reflect that.
If you improved your credit significantly — say, from 620 to 720 — it is worth getting quotes from other insurers too. A company that charged you a high rate based on your old score might now be competitive, or a different company might offer better terms at your new score level.
Some insurers offer discounts for customers who improve their credit during the policy period, though this is rare. Connecticut requires it by law. Ask your insurer directly whether they offer a credit improvement discount.
Frequently Asked Questions
Can an insurer deny me coverage because of my credit score?
No. Insurers can use credit to set your rate, but not to refuse to cover you. If you can pay the premium, they must sell you a policy. Some insurers may not write new customers in certain credit ranges, but that is a business decision, not a legal requirement to deny coverage.
Does checking my own credit score hurt my insurance rate?
No. Checking your own credit is a soft inquiry and does not lower your score or affect your insurance rate. Only hard inquiries from lenders or insurers pulling your credit for a rate quote count, and insurance quotes are soft inquiries.
If I pay my insurance premium late, does that hurt my credit?
Only if your insurer reports it to a credit bureau, which most do not unless you are significantly behind. A single late payment usually does not get reported. However, if your account goes to collections, it will appear on your credit report and lower your score. Pay your premium on time to avoid this.
Will my rate go down if I dispute errors on my credit report?
Possibly. If errors on your report lowered your credit score, correcting them will raise your score. When your score rises, your insurance rate may drop at renewal or when you request a new quote. The timing depends on when your insurer next pulls your credit.
Do all insurance companies use credit scores the same way?
No. Some weight credit heavily; others barely use it. This is why shopping around matters — you might pay $200 more per year at one company and $50 more at another, both based on the same low credit score. Getting quotes from multiple insurers shows you which ones are most affected by credit.