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Credit Score & Car Insurance: How does one influence the other?

  • Auto Insurance
  • Renee Martin
  • 5 minutes

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Have you ever applied for a credit card, leased a car, or sought a mortgage for a house? Then you may be aware that credit scores are important. You might be surprised to learn that they can have an impact on your car insurance rates in the same way that your driving record, marital status, and payment history does.

Many auto insurance companies utilize a credit-based auto insurance score to determine whether to accept you as a policyholder and the rate you’ll pay if they do. While credit is only one of many elements that influence your rate, it can help you save money.

What is a credit score?

A credit score, also known as the FICO score, is calculated using information from your credit record. Lenders use this data to estimate your likelihood of repaying a loan on time. Credit ratings determine interest rates and loan qualifications.

What is a credit-based insurance score?

According to the Insurance Information Institute (III), credit-based insurance scores do not take into account your job, income history, gender, or any other personal information. Instead, insurance companies analyze your payment history and total debt to determine your risk level. Car insurance companies use them to evaluate the possibility of a future insurance claim.

Most insurance companies in the United States use credit-based insurance scores, as well as your driving history, claims history, and a variety of other variables, to determine eligibility for payment plans and insurance premiums. California, Hawaii, and Massachusetts are the only states where this practice is banned.

Read: Factors that can raise your car insurance rate

If you have a good credit-based insurance score, a clean driving record, and no claims on your record, you will qualify for cheaper rates. This score is just one of several factors considered when calculating your premium. If you have an exceptional insurance score but a less-than-perfect driving record, you may be regarded as a higher risk to insure.

Why do insurers utilize credit-based insurance scores?

Countless years of research suggest that credit-based insurance scores can effectively predict the likelihood of an accident. According to statistical data, drivers with a low insurance score are more likely to file a claim. Those with higher scores had fewer accidents and cost insurance companies less than those with lower credit scores. 

The Federal Trade Commission conducted an independent study on the relationship between credit history and risk. Their study, like others before it, discovered that credit-based insurance scores are effective risk predictors.

What else determines my car insurance premium?

Whether or not an insurance provider employs a credit-based insurance score, a variety of factors are taken into account to determine your eligibility and premiums, including:

  • Your driving record
  • Where you live
  • Your age, gender, and marital status
  • Type of car you are insuring
  • Your coverage options and deductibles

How can I improve my credit score?

While credit scores and credit-based insurance scores are not the same, both consider similar behavior. If you have a good credit score, you most likely have a high credit-based insurance score as well. If your credit score is poor, taking steps to increase it will almost certainly raise your credit-based insurance score. Here are a few tips to help improve your credit score:

  • Pay your bills on time every month.
  • Missed a payment? Make your account current ASAP!
  • Pay your credit card bills to lower your debt and credit utilization rate.
  • Check your credit report to confirm that all of the information is correct and up to date.

How to find the best car insurance rates?

Aside from improving your credit score, there are several methods to lower your car insurance rates.

Many insurance companies provide discounts that might help you save money on your rates. These may include a good driver discount if you haven’t been in an accident recently. You could also benefit from multiple-vehicle and multiple-policy discounts if you insure multiple vehicles or have different forms of insurance with the same carrier. 

Your insurance company may not inform you of all the available discounts or may be unaware of which ones you are eligible for. If you install anti-theft devices in your car, for example, calling your insurer and informing them may qualify you for additional savings.

You could save money by selecting a policy with smaller coverage limits. If you have an older car and don’t have a loan or lease, obtaining a simple liability policy (rather than full coverage, which includes collision and comprehensive) can also result in significant savings.

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Finally, shop around for car insurance policies regularly to ensure you’re getting the best deal. Even if you’ve paid in advance for six months or a year, you may be able to switch insurance to lock in the savings and receive a prorated refund from your old insurer. To start your search for the best car insurance companies, tap the banner above. Way.com can help you obtain the best car insurance quotes in under 10 minutes using just your zip code.

Check out our blogs for info on finding top-rated airport parking, the best parking spots in your city, and affordable car washes near you.


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