Why Your Credit Score Can Make or Break Your Insurance Rate
Imagine two drivers: both have spotless driving records, live in the same neighborhood, and drive similar cars. But one pays nearly double for auto insurance. Why? Credit score.
Welcome to the world of credit-based insurance scoring, a practice used by insurers in most states to predict risk and set rates. Whether you're shopping for auto insurance or homeowners coverage, your credit score could be quietly shaping your premium.
What Is a Credit-Based Insurance Score?
A credit-based insurance score is not the same as your FICO score, but it’s derived from similar data: payment history, outstanding debt, length of credit history, new credit inquiries, and types of credit used. Insurers use this score to estimate how likely you are to file a claim.
Why? Because statistically, people with lower credit scores tend to file more claims. It’s not personal—it’s predictive.
States Where Credit Impacts Insurance Rates
In most states, insurers are allowed to use credit scores when calculating premiums. However, seven states restrict or prohibit this practice:
California
Hawaii
Maryland
Massachusetts
Michigan
Oregon
Utah【1】
If you live outside these states, your credit score likely plays a role in your insurance pricing.
How Much Can Credit Affect Your Insurance Rate?
The impact can be jaw-dropping:
Auto Insurance: Drivers with poor credit pay 105% more on average for full coverage than those with excellent credit【3】.
In some cases, poor credit can increase rates by up to 273%, even with a perfect driving record【2】.
Home Insurance: Homeowners with poor credit can pay 60% to 100% more than those with excellent credit, depending on the state and insurer.
Let’s break it down:
How Many People Are Impacted?
According to recent studies:
Over 150 million Americans have credit scores below 700.
Roughly 1 in 3 drivers are paying higher auto insurance premiums due to suboptimal credit【2】【5】.
Millions of homeowners face inflated premiums because of credit-based scoring.
This means tens of millions of people are affected—often without realizing it.
Why Insurers Use Credit Scores
Insurers argue that credit scores are a reliable predictor of risk. People with higher scores tend to:
Pay bills on time
Maintain consistent coverage
File fewer claims
It’s not about wealth—it’s about behavior. And insurers love predictability.
Is It Fair?
That’s the million-dollar question. Critics argue that using credit scores penalizes:
Young adults with limited credit history
People recovering from financial hardship
Communities with lower average credit scores
Some states have responded by banning or limiting the practice. But in most places, it’s still legal. Penalizing those who have bad credit, often due to hardships, seems to punish those who are unable to afford the exhorbant rates.
What You Can Do About It
Whether your credit is stellar or still a work in progress, here’s how to take control:
For High-Credit Shoppers:
Shop around. Your excellent credit should earn you better rates—make sure it does.
Bundle policies. Combine auto and home for discounts.
Ask for discounts. Safe driver, loyalty, and multi-policy discounts can stack up.
For Low-Credit Shoppers:
Improve your credit. Even small gains can lower your premium.
Compare quotes. Some insurers weigh credit less heavily than others.
Consider usage-based insurance. Programs that track driving behavior may offer better rates.
Final Thoughts: Credit Isn’t Destiny
Your credit score is a powerful factor—but it’s not the only one. Driving history, claims history, location, and coverage choices all matter.
So whether you’re a credit rockstar or just starting your financial comeback, you have options. And now, you have knowledge.
