Does Credit Score Affect Car Insurance? The Truth About Credit-Based Insurance Scoring

You check your mirrors. You signal lane changes. You haven’t had a ticket in years.

So why is your car insurance bill so high?

Here’s the plot twist most drivers never see coming: Your credit score might be sabotaging your premium.

While you’ve been focused on maintaining that spotless driving record, insurers have been quietly reviewing something else entirely—your credit-based insurance score. And depending on where you live, it could be costing you hundreds (or even thousands) of dollars a year.

Let’s break down exactly how this works, why it matters, and what you can do about it.

What Is a Credit-Based Insurance Score? (And Why You Should Care)

First things first: Your credit-based insurance score (CBIS) is not the same as your regular credit score.

Think of it as a cousin—related, but with its own personality.

While your FICO score helps lenders decide whether to give you a mortgage, your CBIS helps insurers predict how likely you are to file a claim. Different game, different rules.

Here’s what goes into a CBIS:

• Payment history (Are you consistent or chronically late?)
• Outstanding debt (How much you owe vs. how much credit you have)
• Length of credit history (Insurers love a long, boring track record)
• New credit applications (Opening five credit cards in a month? Red flag.)
• Mix of credit types (Mortgages, auto loans, credit cards—variety matters)

Some insurers use third-party scoring models (FICO, LexisNexis). Others build their own using your full credit file. Either way, they’re bound by the same Fair Credit rules as mortgage lenders—which means you can dispute errors and they can’t just make stuff up.

Quick Comparison: Credit Score vs. Insurance Score

Notice the pattern? Consistency wins in both arenas.

Why Do Insurers Care About Your Credit Score?

Let’s get one thing straight: Insurers aren’t judging your net worth or checking your bank balance.

They’re judging your behavior.

Decades of data show a correlation between credit behavior and insurance claims. People with better credit tend to file fewer claims—and when they do file, those claims tend to be smaller.

The insurer’s logic goes like this:

Someone who pays bills on time, manages debt responsibly, and doesn’t overextend themselves financially is also more likely to be careful, responsible, and less likely to file frivolous claims.

Is it perfect? No. Is it predictive? Statistically, yes.

Insurance companies are professional risk assessors. They’ve crunched the numbers on millions of policyholders and found that credit behavior is a reliable indicator of future claims. It’s not about wealth—it’s about reliability.

Think of it this way: A driver with excellent credit who’s never had an accident looks very different (from a risk perspective) than a driver with a terrible credit history who’s also never had an accident. The data says they won’t behave the same way in the future.

The Real Dollar Impact: How Much Does Credit Actually Affect Your Rate?

Here’s where it gets expensive.

Your credit score doesn’t just nudge your car insurance price—it can crater it or catapult it.

The typical breakdown:

• Excellent credit: 15–25% lower premiums
• Good credit: Baseline rates
• Fair credit: 10–30% higher premiums
• Poor credit: 50% (or more) higher premiums

Let’s make this concrete with an example:

Meet Sarah. She’s 35, drives a Honda Accord, and has a squeaky-clean driving record. With good credit, her annual premium might be $1,200.

Now meet Sarah’s alternate universe twin—same age, same car, same driving record—but with poor credit. Her premium? $1,850 or more.

Same driver. Same risk on paper. But a $650 annual difference because of credit.

Most insurers tier drivers into credit categories (Excellent, Good, Fair, Poor), and each tier gets different pricing. The exact weight varies by carrier—some treat credit as gospel, others barely glance at it—which is why shopping around for auto insurance is so crucial.

The State-by-State Patchwork: Where Credit Matters (and Where It Doesn’t)

Here’s where things get messy.

Not every state allows credit-based insurance scoring. Some ban it outright. Others restrict how it can be used. The result? A confusing patchwork of rules that can whipsaw you if you move across state lines.

States where credit-based scoring is prohibited or heavily restricted:

• California (banned)
• Hawaii (banned)
• Massachusetts (banned)
• Michigan (restricted for certain coverages)

States with partial restrictions:

• Maryland (limited use)
• Oregon (can’t be the sole reason for denial)
• Utah (additional consumer protections)

Everywhere else? Fair game.

This creates bizarre situations. A driver moving from California to Texas might see their premium spike—not because they became a worse driver overnight, but because Texas insurers can suddenly factor in their credit.

Credit Isn’t Everything: The Other Factors That Determine Your Rate

Before you spiral into credit score obsession, remember this: Credit is powerful, but it’s not the only player in the game.

Insurance companies evaluate multiple factors when setting your rate:

The big ones:

• Driving record (accidents, tickets, DUIs—these hit hard)
• Age and experience (young drivers pay more, period)
• Location (ZIP code matters—urban areas = higher rates)
• Vehicle type (sports cars and luxury vehicles cost more to insure)
• Coverage limits and deductibles (more coverage = higher premiums)
• Annual mileage (the more you drive, the more risk)
• Gender and marital status (where allowed by law)

Improving your credit helps. But if you’ve got three speeding tickets and drive a Dodge Charger in downtown Miami? Your credit won’t save you.

The smart play: Optimize everything you can control. Better credit plus safe driving plus strategic auto insurance discounts = real savings.

How to Improve Your Credit (and Your Insurance Rate)

Good news: You have more control here than you think.

Credit improvement isn’t some mystical art. It’s a series of small, boring, consistent actions that compound over time.

Your action plan:

1. Pay every bill on time, every month. Set up autopay. Use calendar reminders. Tattoo it on your forehead if necessary. Payment history is the single biggest factor in both your credit and insurance scores.
2. Reduce your credit card balances. Aim to keep utilization under 30% of your credit limit. Under 10% is even better. If you have a $5,000 limit, keep the balance below $1,500.
3. Don’t open new accounts impulsively. Every new credit application creates a hard inquiry and lowers your average account age. Both hurt your score.
4. Check your credit report for errors. Get your free annual report from AnnualCreditReport.com. Dispute any mistakes immediately. Errors are more common than you’d think.
5. Keep old accounts open. That credit card you got in college? Keep it. Length of credit history matters, and closing old accounts can backfire.

The timeline: Don’t expect overnight miracles. Credit improvements typically take 3–6 months to show up in your insurance score. But once they do, your premiums can drop—sometimes significantly.

Pro tip: After improving your credit, don’t wait for your policy to renew. Call your insurer and ask them to re-run your credit. Some will adjust your rate mid-term.

What If You Have No Credit or Poor Credit?

Let’s say you’re starting from zero—or worse.

Maybe you’re young and haven’t built credit yet. Maybe you went through bankruptcy. Maybe life happened.

You’re not doomed to pay sky-high rates forever.

Here’s your survival guide:

• Shop multiple carriers aggressively. Different insurers weigh credit differently. Company A might penalize poor credit heavily, while Company B barely factors it in. You won’t know until you compare quotes.
• Ask about state-sponsored programs. Some states offer assigned risk plans or nonstandard insurance programs for drivers who can’t get coverage otherwise.
• Bundle policies. Combining auto insurance with home or renters insurance can offset credit-based rate increases through bundling discounts.
• Re-shop as your credit improves. Don’t set-it-and-forget-it. As your credit rebuilds, get new quotes every six months. Loyalty to one insurer rarely pays off.
• Consider usage-based or pay-per-mile programs. Some insurers offer telematics programs that focus on how you drive rather than your credit history. Safe drivers can earn serious discounts regardless of credit.

Busting the Biggest Myths About Credit and Car Insurance

Let’s kill some misinformation.

Myth #1: “Insurers check my income and bank accounts”
Truth: Nope. They only see your credit-based insurance score—a number derived from credit behavior. They have no idea how much money you make or have in savings.

Myth #2: “Getting insurance quotes will hurt my credit”
Truth: Insurance inquiries are soft pulls. They don’t affect your credit score at all. Shop away.

Myth #3: “If I’m a great driver, bad credit won’t matter”
Truth: In states where credit scoring is allowed, it matters a lot—even with a perfect driving record. Credit and driving history are evaluated separately.

Myth #4: “All insurers use credit the same way”
Truth: Every company has its own formula. Some weight it heavily, others barely use it. This is why quotes vary so wildly between carriers.

The Credit-Based Insurance Scoring Fairness Debate: Is This Even Right?

Let’s address the elephant in the room.

Is it fair that your credit score affects your auto insurance coverage costs?

Consumer advocates say no. They argue that credit-based scoring disproportionately harms low-income drivers and creates a vicious cycle: financial hardship negatively impacts your credit, which in turn raises your insurance costs, leading to further financial hardship.

Fair point.

Insurers counter with data: Credit-based scoring is predictive, actuarially sound, and keeps rates stable for the majority of drivers. Remove it, they argue, and rates would rise overall to compensate for lost pricing precision.

Also, a fair point.

State legislatures remain split. Some have banned the practice. Others fully embrace it. The debate isn’t going away anytime soon.

Here’s what matters for you: Whether you think it’s fair or not, in most states, it’s real. Understanding the system—and gaming it to your advantage—beats complaining about it.

Think of credit-based scoring as an incentive to maintain good financial habits. Not because it’s fair, but because it saves you money.

The Bottom Line: Your Credit Is Power

Here’s the truth: Your credit score affects your car insurance rate in most states, whether you like it or not.

But unlike your age, your ZIP code, or your driving record from five years ago, credit is something you can actively improve.

Small, consistent actions compound:

• Pay bills on time
• Keep balances low
• Check for errors
• Shop multiple carriers
• Re-evaluate your rate annually

Do this for six months, and you could see real savings. Do it for a year, and you’ll wonder why you didn’t start sooner.

Your move: If you’re not sure how your credit is affecting your insurance costs—or whether you’re overpaying—it’s time to find out.

Contact us for a policy review or rate comparison. We’ll show you exactly where you stand and how to improve it.

Because the best insurance strategy isn’t just buying cheap auto insurance.

It’s buying coverage smartly.