Skip to main content

Does Your Credit Score Affect Your Car Insurance Rate?

Like It or Not, Poor Credit Can Mean Steeper Rates

Does your credit score impact your car insurance rate? It's a question you might have wondered about before — especially if you have a particularly spotty credit record. Unless you live in California, Hawaii or Massachusetts, the short answer is yes. The explanation of the relationship between credit scores and car insurance rate-setting is more complex, however.

In all but three states, insurers can use your credit history to help set your rate. If you have bad credit, you can minimize the costs by shopping around for better rates. For the longer term, work on improving your credit score.

In all but three states, insurers can use your credit history to help set your rate. If you have bad credit, you can minimize the costs by shopping around for better rates. For the longer term, work on improving your credit score.

What Factors Into a Car Insurance Rate?

Obviously, your driving record has an impact on the estimated risk your insurance company assumes by taking you on as a driver. There also are other risk elements that affect your car insurance, according to the Insurance Information Institute: where you park your car at night, your gender, your age and the kind of car you drive. Also relevant to your rate, according to insurance companies, is your credit score.

The practice of using credit scores in setting insurance rates has been around for at least 20 years. According to at least two studies, a 2003 study done at the McCombs School of Business at the University of Texas at Austin, and a 2007 study by the Federal Trade Commission, there is a statistical correlation between how much a consumer costs an insurance company and that customer's credit score.

See Edmunds pricing data

Has Your Car's Value Changed?

Used car values are constantly changing. Edmunds lets you track your vehicle's value over time so you can decide when to sell or trade in.

Price history graph example

The Texas study looked at a random sample of 175,647 people in the state and found that "the lower a named insured's credit score, the higher the probability that the insured will incur losses on an automobile insurance policy, and the higher the expected loss on the policy." The study's authors noted that they did not attempt to explain why credit scoring added significantly to the insurer's ability to predict insurance losses.

The FTC study found that credit-based insurance scores are effective predictors of risk under automobile policies. "They are predictive of the number of claims consumers file and the total cost of those claims," study authors write. "The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums."

It's also important to note that insurance companies don't use traditional credit scores. They build their own scores based on FICO or Experian scores: Basically, companies take your score and use it in their own model.

But Is This Fair?

According to J. Robert Hunter, director of insurance at the Consumer Federation of America, credit scoring was the first classification factor used by insurance companies that was not based on traditional actuarial research. Before this, he says, rate factors were determined by developing a thesis and then testing it by collecting data to determine if it was correct. For example: If the thesis was that drivers with a DUI conviction might have more claims in the following year, actuaries might look at statistical evidence to see if such a thesis was correct.

Hunter said that advocates for the use of credit scores in car insurance rate-setting "still cannot explain what they are measuring, coming up with explanations like, 'Sloppy with finance means sloppy with driving.'

"Of course, when the 2008 financial crisis hit, many people developed worse credit scores that had nothing to do with their sloppiness," he said.

"The fact is that credit is a surrogate for prohibited rate classes such as income and race," Hunter said. "Insurers are prohibited from using these factors in all states and we think this is their way around the prohibition."

But others argue that insurance is a numbers game and the practice, even if unfair, might be logical. Frankie Kuo, an analyst at, says that insurers are "doing their best to find out whether their future and current policyholders are a good or bad risk to take."

What You Can Do To Mitigate Your Costs

Regardless of whether the use of credit history is fair, it is legal in all but three states. So what can you do if your credit score is in less than perfect shape? As always, your best bet is to shop around for an insurance company.

"Insurers always differ in how much weight they put on each rating factor, and I guarantee you consumers will always find one that finds their imperfect credit score less of a problem than other insurers do," Kuo explains.

According to a study by WalletHub, Geico appears to rely the least on credit scores, while Farmers Insurance seems to lean on it the most heavily.

For consumers who have difficulty finding coverage at all, in almost every state there is an assigned risk plan that helps high-risk drivers find coverage for a limited period of time. "Even if the rates may be higher than if they obtain a policy in the voluntary market, they will be avoiding insurance lapse, which not only contributes to higher rates in the future, but also possibly legal consequences," Kuo explained.

Finally, improve or maintain your credit history by paying your bills on time and not skipping payments. You also should check your credit report and keep an eye out for possible errors. Consider free credit monitoring with a company like CreditKarma and free annual credit-history reports from