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In most states, your credit score shapes your car insurance premium almost as much as your driving record. Insurers call it a credit-based insurance score, and the price gap between good credit and poor credit can be enormous. Here is how it works, which states keep credit out of the equation, and what you can do about it.
What a credit-based insurance score is
A credit-based insurance score is a number insurers derive from your credit history: payment history, outstanding balances, length of credit history, new credit activity, and the mix of credit types. It is not identical to your FICO score, but it draws from the same data. Insurers use it because their own studies find a correlation between credit behavior and claim frequency. Drivers with better credit file fewer and cheaper claims, on average, so they get lower rates.
The effect is large. A Wall Street Journal analysis of 10 major carriers, using Quadrant Information Services rate data from June 2025, found a driver with poor credit pays roughly 190 percent more for auto insurance than the same driver with excellent credit. Nationally, that worked out to $426 a month versus $147. The spread varies wildly by company: State Farm’s gap reached 534 percent, while Nationwide’s was 79 percent. The Zebra’s 2026 data found the widest tier gap can reach 273 percent, about $4,581 a year.
One reassurance: the insurance inquiry is a soft pull. Checking your rate does not dent your credit score, and buying a policy does not either.
Where credit cannot be used
Four states ban credit-based insurance scoring for auto insurance outright: California, Hawaii, Massachusetts, and Michigan. In these states your credit history cannot raise your premium, no matter how poor it is. Michigan’s ban is the newest, and a ConsumerAffairs analysis noted that without it, Michigan drivers with very poor credit would pay $8,640 a year on average instead of $3,096.
Other states limit the practice. In Maryland, insurers can use credit at first purchase but cannot use it to deny applications, cancel policies, refuse renewals, or raise premiums at renewal. Oregon has similar restrictions on using credit for rates and eligibility. In Utah, credit cannot be the sole rating factor, and insurers cannot charge more for bad credit or change discounts when credit changes. New York and Illinois prohibit denying, canceling, or nonrenewing coverage based solely on credit.
Credit scoring also has a lesser-known side effect worth noting: a 2016 Vermont study found about two-thirds of policyholders paid less when credit was factored into pricing, because the risk got distributed differently. The ban-or-allow debate cuts both ways, which is part of why only four states have gone all the way.
How to improve yours
Credit-based insurance scores reward the same habits as regular credit scores: pay on time, keep utilization below 30 percent of your limits, and avoid opening several new accounts at once. Insurers typically re-pull credit at renewal, so improvements show up over time rather than overnight.
If your credit is poor and your state allows scoring, two moves help right now. First, shop more aggressively, because the gap between carriers is widest at the bottom tiers. The difference between the cheapest and most expensive insurer for a poor-credit driver can be thousands of dollars a year. Second, ask about usage-based programs, which base your rate on actual driving rather than your financial history and can bypass the credit penalty entirely.
Related reading: How Improving Your Credit Score Can Lower Your Car Insurance Premium, Cheapest Car Insurance Companies in 2026: Who Is Actually Cheapest, Usage-Based Car Insurance Discounts: What Drivers Actually Save
