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In most states, your credit history can affect what you pay for car insurance. Insurers use something called a credit-based insurance score, which is built from information in your credit report, to help set your premium. Drivers with stronger credit usually pay less, and drivers with weaker credit usually pay more. It surprises a lot of people, because your credit habits seem to have nothing to do with your driving. Here is why insurers do it and what the rules are.
What a credit-based insurance score is
This is not your regular credit score, though it comes from the same raw material. Insurers take items from your credit report, things like payment history, outstanding debt, length of credit history, and recent credit inquiries, and run them through a model built to predict insurance claims. Their claim, backed by their own data, is that people with stronger credit file fewer and less costly claims.
Consumer advocates push back on this, arguing the connection is unfair and punishes people for financial hardship rather than risky driving. Regulators in several states have agreed. But in most of the country, the practice is legal and widespread, so it is worth understanding even if you disagree with it.
Which states restrict it
A handful of states ban or limit the use of credit in car insurance pricing. California, Hawaii, and Massachusetts prohibit insurers from using credit-based insurance scores for auto policies. Michigan has restricted the practice, and Washington has gone back and forth through rulemaking and court challenges. Everywhere else, insurers can use it, though some states require them to tell you when credit hurt your rate or to recheck your score at renewal.
Rules change, so if you live in one of the states above, confirm the current law rather than assuming. And if you move from a state that bans the practice to one that allows it, expect your credit to start mattering at your next policy.
How much it can matter
Credit is one of the heavier factors in pricing, alongside your driving record, age, location, and vehicle. Moving from poor credit to good credit can change a premium by a large amount in states where it is used, sometimes rivaling the effect of an at-fault accident. It is not the only factor, and a perfect driving record still helps, but credit carries real weight. Our breakdown of what affects car insurance rates shows how all the factors fit together.
What you can do about it
The steps that improve a credit-based insurance score are the same ones that improve regular credit. Pay every bill on time, since payment history is the biggest piece. Keep credit card balances low relative to your limits. Avoid opening several new accounts in a short period. And check your credit reports for errors, because a mistake dragging your score down is also dragging your premium up.
Credit moves slowly, so this is a long game. But there is a shorter-term move: shop around. Insurers weight credit differently. One company might penalize weak credit heavily while another barely factors it in. If your credit is rough, getting quotes from several insurers is especially important, because the spread between the cheapest and most expensive quote can be wide. Our guide to comparing insurance quotes the right way walks through how to do it without missing anything.
What insurers cannot do
Even where credit-based scoring is allowed, there are guardrails. Insurers generally cannot use your credit as the sole reason to deny you coverage, and they cannot pull your credit without a permissible reason, which applying for insurance provides. A credit check for insurance is a soft inquiry, so shopping for quotes will not hurt your score the way applying for several credit cards might.
Some insurers also offer to recheck your credit at renewal or on request. If your credit has improved since you bought the policy, asking for a recheck can lower your premium without switching companies. It costs nothing to ask, and the worst they can say is no.
The bottom line
Your credit affects your car insurance in most states, the effect can be large, and a few states ban it outright. You cannot change the rules, but you can improve your credit over time and shop aggressively in the meantime. Drivers who do both usually end up paying less than drivers who do neither, regardless of where they start.
