Why Do Car Insurance Companies Check Your Credit?

When people think about their credit score, they usually associate it with qualifying for a mortgage, a car loan, or a credit card. However, your credit score can also influence how much you pay for car insurance. Many drivers are surprised to learn that insurers use credit-based insurance scores when determining premiums—often with a significant impact on the final price.

Why Do Car Insurance Companies Check Your Credit?

Insurance providers use a variety of factors to assess how much risk you pose as a policyholder. These factors typically include your driving history, age, vehicle type, location, and, yes, your credit score. The reasoning behind this is statistical: studies have shown that people with higher credit scores are less likely to file claims and are generally more financially responsible. From the insurer’s perspective, this means lower risk and, therefore, lower premiums.

Credit-based insurance scores are different from traditional credit scores used by lenders. While they are derived from your credit report, they focus specifically on factors that are predictive of insurance risk. Standard components include payment history, outstanding debt, credit history length, and recent inquiries.

How Much Can Your Credit Score Impact Your Rate?

The impact of your credit score on your insurance premium can be significant. According to a study by the Consumer Federation of America, drivers with poor credit may pay anywhere from 50% to 100% more for car insurance compared to those with excellent credit, even if they have clean driving records. In some states, the difference can be even more drastic.

Here’s a quick example:

• A driver with excellent credit might pay $1,200 per year for coverage.
• The same driver with poor credit could be quoted over $2,000 annually.

This can be especially frustrating for drivers who have never been involved in an accident or made a claim.

Are There States That Prohibit This Practice?

Yes, a few states restrict or outright ban the use of credit in determining car insurance rates. As of 2025, California, Hawaii, and Massachusetts do not allow insurance companies to consider credit scores when pricing auto policies. If you live in one of these states, your credit history won’t affect your rate. However, in most of the United States, your credit score remains a key factor in determining your insurance premium.

How to Improve Your Insurance Rate with Better Credit

If your credit score is on the lower end, improving it can help lower your insurance costs over time. Here are a few simple steps:

• Pay all bills on time.
• Reduce outstanding debt, especially on credit cards.
• Check your credit report for errors and dispute inaccuracies.
• Avoid opening too many new accounts at once.

Even modest improvements in your credit score can result in more favorable insurance quotes the next time you shop for coverage.

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Your credit score doesn’t just affect your borrowing power—it also plays a role in how much you pay for car insurance. Understanding this connection can empower you to make better financial decisions and potentially save hundreds of dollars each year. If you’re concerned about your rates, it’s worth asking your insurer how your credit history is impacting your premium—and whether improving it could lead to savings down the road.

For an affordable car insurance quote contact us today by calling (541) 318-8835 or click here to connect with us online.