Yes, your credit score affects your car insurance rates in most states. Insurance companies use a credit-based insurance score — a special score built from your credit report — to predict how likely you are to file a claim. The Fair and Accurate Credit Transactions Act (FACTA) directed the Federal Trade Commission to study this practice, and the FTC confirmed in 2007 that credit-based insurance scores are “effective predictors of risk under automobile policies.” Drivers with poor credit pay an average of 105% more for full coverage car insurance than those with excellent credit.
Here’s what you’ll learn in this article:
- 🔍 What a credit-based insurance score is and how it differs from your regular FICO score
- 💰 How much more you’ll pay for car insurance with poor, fair, good, and excellent credit — with real dollar amounts
- ⚖️ Which states ban insurers from using credit scores and which states allow the biggest rate hikes
- 🛡️ The exact mistakes that damage your insurance score and how to avoid each one
- 📋 Step-by-step actions to lower your credit-based insurance score and reduce your premiums
What a Credit-Based Insurance Score Really Is
A credit-based insurance score is not the same as your FICO credit score. Your FICO score predicts whether you’ll fall 90 days behind on a bill within the next 24 months. A credit-based insurance score predicts whether you’ll file an insurance claim that costs the insurer money.
Both scores pull data from your credit report at Equifax, TransUnion, or Experian. Both scores are built by FICO’s scoring models. The key difference is what they measure and who uses them.
FICO credit scores range from 300 to 850. Credit-based insurance scores use different scales depending on the model. The LexisNexis Attract score, for example, ranges from 200 to 997.
| FICO Credit Score | Credit-Based Insurance Score |
|---|---|
| Predicts missed bill payments | Predicts insurance claim likelihood |
| Range: 300–850 | Range varies (e.g., 200–997) |
| Used by lenders and banks | Used by insurance companies |
| Affects loan approvals and interest rates | Affects insurance premiums and eligibility |
Every insurance company builds its own proprietary insurance score formula. A “good” score at one company may be “average” at another. This means no two insurers will charge you the exact same rate based on your credit.
Five Credit Factors That Control Your Insurance Premium
Insurance companies evaluate five main factors from your credit report when calculating your credit-based insurance score. Each factor carries a different weight in the formula.
Payment history shows whether you pay bills on time. Late payments, collections, and charge-offs all drag your score down. This factor carries the most weight in both your FICO score and your insurance score.
Outstanding debt measures how much money you owe across all accounts. High balances relative to your credit limits signal financial stress. Insurance companies see this as a predictor of higher claim risk.
Credit history length tracks how long your oldest accounts have been open. A longer credit history gives insurers more data to evaluate your financial patterns. Closing old credit cards shortens your history and can hurt this factor.
Credit mix reflects the variety of credit types you carry, such as auto loans, mortgages, and credit cards. A healthy mix shows insurers you can manage different types of financial obligations.
Pursuit of new credit counts how many times you’ve recently applied for new lines of credit. Too many hard inquiries in a short period signals financial instability to insurers.
Why the Federal Government Says Credit Scoring Works
The FTC’s landmark 2007 study — ordered by Congress under the Fair and Accurate Credit Transactions Act — examined millions of insurance records. The study reached a clear finding: credit-based insurance scores are effective predictors of the number of claims consumers file and the total cost of those claims.
The FTC also found that scores make insurance pricing more accurate. Higher-risk consumers pay higher premiums, and lower-risk consumers pay lower premiums. The Insurance Information Institute pointed out that this practice has contributed to a trend of declining average auto insurance rates.
The study did raise concerns about fairness. African-Americans and Hispanics tend to have lower credit-based insurance scores as a group, which affects the premiums they pay on average. The FTC found that scores function as a proxy for race only about 1.1% of the time for African-Americans and 0.7% for Hispanics — meaning most of the score’s predictive power comes from actual risk factors, not racial bias.
The Federal Reserve Board conducted a separate study in August 2007. It confirmed that credit scores are predictive of risk and are not proxies or substitutes for race, ethnicity, or gender.
The Dollar Difference: What Poor Credit Costs You
The gap between what drivers with good credit pay and what drivers with poor credit pay is staggering. People with bad credit pay an average of $204 more per month for full coverage than those with good credit.
That adds up to almost $2,448 more per year — just because of a credit score. Drivers who improve their credit by even one tier save an average of 54% on their insurance rate.
| Credit Tier | Average Monthly Full Coverage Cost |
|---|---|
| Excellent credit | $163 |
| Good credit | $180 |
| Average credit | $195 |
| Poor credit | $226 |
Data sourced from Insurify’s 2026 analysis of car insurance rates by credit tier.
These numbers represent national averages. Your actual rate depends on your state, your insurer, your driving record, your age, and your vehicle. The credit factor alone can swing your premium by thousands of dollars each year.
States That Ban Credit-Based Insurance Scoring
Not every state allows insurance companies to use your credit. Four states completely ban the use of credit reports in setting auto insurance rates: California, Hawaii, Massachusetts, and Michigan.
Three additional states — Maryland, Oregon, and Utah — impose strict limitations on how insurers can use credit information. These states don’t fully ban credit use, but they prevent insurers from canceling policies, refusing renewals, or denying applications based on credit history.
| State | What the Law Does |
|---|---|
| California | Full ban on credit use in auto insurance rating |
| Hawaii | Bans credit in auto insurance underwriting and rating |
| Massachusetts | Forbids credit use in auto rates, underwriting, and renewals |
| Michigan | Bans credit use for auto rate-setting and policy decisions |
| Maryland | Allows credit for new policy rates but bans cancellation or non-renewal based on credit |
| Oregon | Restricts credit use for cancellation and non-renewal |
| Utah | Restricts credit use for cancellation and non-renewal |
Washington state introduced a temporary rule banning credit use during the pandemic, with the state’s insurance commissioner working to make the ban permanent. A Consumer Federation of America study found that good drivers in Washington with poor credit paid 79% more for auto insurance than drivers with excellent credit before the ban.
Why Some States Push Back Against Credit Scoring
The fairness debate drives state-level bans. Governor Jay Inslee of Washington said, “I just don’t think it’s fair to good drivers to punish them if they’ve had some credit difficulty.” Consumer advocates argue that medical debt, job loss, or divorce can tank a credit score — none of which relate to driving ability.
The insurance industry disagrees. Insurers argue that banning credit scores removes a tool that keeps premiums lower for the majority of drivers who have good credit. Without credit scoring, insurers say they must spread risk more evenly, which could raise rates for everyone.
States Where Bad Credit Hurts the Most
The impact of poor credit varies wildly from state to state. Drivers in Washington, D.C. face the worst penalty — paying three times more for full coverage than drivers with good credit.
Minnesota sees rate increases of up to 285% for drivers whose credit drops from exceptional to very poor. Arizona hits poor-credit drivers with a 243% rate increase, while North Carolina adds about 74%.
| State | Rate Increase for Poor Credit |
|---|---|
| Washington, D.C. | ~200%+ (3x more) |
| Minnesota | Up to 285% |
| Arizona | ~243% |
| Louisiana | ~125% |
| North Carolina | ~74% |
| Washington (state) | ~42% (lowest among states that allow credit) |
Washington state has the smallest rate increase at just 42% among states that allow credit scoring. The difference between living in Arizona versus Washington can mean thousands of dollars more or less each year.
Three Real-World Scenarios: Credit and Car Insurance
Scenario 1: Marcus Rebuilds After Bankruptcy
Marcus is a 35-year-old driver in Texas with a clean driving record. He filed for Chapter 7 bankruptcy two years ago, and his credit score dropped to 520. He drives a 2020 Honda Civic and needs full coverage because he still has an auto loan.
| Marcus’s Situation | Insurance Consequence |
|---|---|
| Filed Chapter 7 bankruptcy | Credit-based insurance score drops to lowest tier |
| Clean driving record for 10 years | Good driving history does not override poor credit impact |
| Needs full coverage for auto loan | Full coverage premiums hit hardest by bad credit |
| Lives in Texas (credit scoring allowed) | Texas insurers weigh credit heavily in pricing |
| Shops with only one insurer | Misses potential savings of hundreds per year |
Marcus gets quoted $340/month for full coverage. A driver with his identical profile but excellent credit gets quoted $165/month. Marcus pays an extra $2,100 per year because of his credit alone. His best move is to shop multiple insurers, since each company weighs credit differently. Some carriers like Nationwide charge only 43% more for poor credit, while others like State Farm can nearly quadruple rates.
Scenario 2: Priya Has No Credit History at All
Priya is a 24-year-old who recently moved to the U.S. and has no credit history. She lives in Illinois and needs car insurance for her new job. She has never had a credit card, auto loan, or any U.S.-based financial account.
| Priya’s Situation | Insurance Consequence |
|---|---|
| No U.S. credit history | Treated the same as poor credit by most insurers |
| Clean driving record (international) | U.S. insurers may not recognize foreign driving history |
| Lives in Illinois (credit scoring allowed) | Illinois insurers can use credit-based scores |
| Young driver (age 24) | Age adds another rate-increasing factor on top of no credit |
| Has no existing insurance history | No prior policy means no loyalty or continuous-coverage discount |
No credit history often equals poor credit in an insurer’s eyes. Priya faces the same inflated rates as someone with a 400 credit score. Her best strategy is to open a secured credit card, make small purchases, and pay the balance in full each month. Within 6 to 12 months, she can build enough history to move up at least one credit tier — which could cut her premium by up to 54%.
Scenario 3: David Moves From California to Florida
David is a 42-year-old driver with a credit score of 590 (fair). He lives in California, where insurers cannot use his credit score. He pays $150/month for full coverage. He accepts a job in Florida and moves.
| David’s Situation | Insurance Consequence |
|---|---|
| Credit score of 590 (fair) | Was invisible in California; now a major pricing factor in Florida |
| Moving from California to Florida | Goes from a ban state to a state that allows credit scoring |
| Same car, same driving record | Premium can jump based solely on credit now being factored in |
| Fair credit tier (not poor, not good) | Expect a moderate rate increase over California rates |
| No recent credit improvement efforts | Missing an opportunity to raise score before the move |
In California, David’s credit score had zero effect on his premium. In Florida, insurers factor credit heavily into their pricing. David’s $150/month premium could jump to $230–$270/month based on his fair credit alone — an increase of $960 to $1,440 per year. David should start improving his credit before the move and shop at least five insurers once he arrives.
Which Insurance Companies Charge the Most (and Least) for Bad Credit
Not all insurers punish bad credit the same way. The gap between the cheapest and most expensive carriers for poor-credit drivers is enormous.
Nationwide offers the best rates for drivers with poor credit, charging only about 43% more than their good-credit rates. American Family adds about $104/month more for bad-credit drivers.
State Farm charges poor-credit drivers $609 per month more than good-credit drivers — making it one of the most expensive carriers for people with low credit scores. That’s an extra $7,308 per year compared to a good-credit driver with the same profile.
| Insurer | How Bad Credit Affects Rates |
|---|---|
| Nationwide | ~43% increase (most affordable for poor credit) |
| American Family | ~$104/month more for poor credit |
| State Farm | ~$609/month more for poor credit |
This is why shopping around matters more than almost anything else when you have poor credit. The difference between choosing the right and wrong insurer can exceed $5,000 per year.
Mistakes That Make Your Credit-Based Insurance Score Worse
Closing Old Credit Card Accounts
Many people close credit cards they no longer use. This is a mistake because it shortens your credit history length and increases your credit utilization ratio. Both changes lower your credit-based insurance score. Keep old accounts open, even if you only use them once every few months.
Maxing Out Credit Cards
Using more than 30% of your available credit sends a red flag to both lenders and insurers. Many finance experts recommend staying below 30% of your total available credit at all times. A maxed-out credit card can drop your insurance score and raise your premium at renewal.
Applying for Multiple Credit Lines at Once
Each new credit application triggers a hard inquiry on your credit report. Multiple hard inquiries in a short period tell insurers you may be in financial trouble. Insurance companies view this as a sign of increased risk.
Ignoring Credit Report Errors
Mistakes on credit reports are more common than most people think. An error could list a late payment you never made or a debt that isn’t yours. Failing to dispute these errors means your insurance score stays lower than it should be — and you pay more for coverage you don’t deserve to overpay for.
Missing Even One Payment
A single missed payment can stay on your credit report for seven years. Payment history is the heaviest-weighted factor in your credit-based insurance score. One late payment on a $50 credit card bill can cost you hundreds of dollars in higher insurance premiums over time.
Not Shopping Around After Credit Improves
Some drivers improve their credit but never re-shop their insurance. Your current insurer may not automatically lower your rate when your score improves. Getting new quotes from multiple companies after a credit improvement is the fastest way to capture savings.
Do’s and Don’ts for Your Credit-Based Insurance Score
| Do | Why |
|---|---|
| Pay every bill on time, every month | Payment history is the single most important factor in your insurance score |
| Keep credit utilization below 30% | High utilization signals financial stress and raises your insurance risk tier |
| Monitor your credit report weekly | Free weekly checks let you catch errors and identity theft before they inflate your premium |
| Keep old credit accounts open | Longer credit history improves your score; closing accounts shortens it |
| Shop at least 3–5 insurers every renewal period | Each insurer weighs credit differently, so quotes can vary by thousands |
| Don’t | Why |
|---|---|
| Don’t apply for several credit cards at once | Multiple hard inquiries lower your score and signal financial instability to insurers |
| Don’t close your oldest credit card | Losing your longest account shortens your credit history and hurts your score |
| Don’t ignore medical or utility debt in collections | Even small collections accounts damage your credit-based insurance score |
| Don’t assume all insurers treat your credit the same | One insurer may charge 43% more for bad credit while another charges 300% more |
| Don’t skip your insurance payment | Unpaid insurance bills can go to collections, which destroys your credit and your insurance score simultaneously |
Pros and Cons of Credit-Based Insurance Scoring
| Pros | Cons |
|---|---|
| Lower premiums for good-credit drivers — the majority of consumers benefit from lower rates | Punishes financial hardship — medical debt, divorce, or job loss can raise premiums even for safe drivers |
| More accurate risk prediction — the FTC confirmed scores predict claims effectively | Racial disparities — African-Americans and Hispanics tend to have lower scores on average |
| Rewards responsible financial behavior — paying bills on time lowers insurance costs | No direct link to driving ability — credit history measures financial behavior, not road safety |
| Encourages credit improvement — drivers have a financial incentive to build better credit | Hurts young people and immigrants — no credit history is often treated the same as poor credit |
| Reduces cross-subsidization — low-risk drivers don’t overpay to cover high-risk drivers | Creates a poverty cycle — low-income drivers pay more, have less money, and can’t improve credit easily |
How Insurance Quotes and Credit Checks Actually Work
Getting a car insurance quote does not hurt your credit score. Insurance companies perform what’s called a “soft pull” when you request a quote. A soft pull checks basic credit information without leaving a mark on your credit report.
A hard pull, by contrast, happens when you apply for a loan or credit card. Hard pulls slightly lower your credit score and stay on your report for two years. You can shop for insurance quotes from 10 different companies in one day without any impact on your credit.
Every major insurance company checks your credit before selling you a policy. GEICO, State Farm, USAA, Progressive, Allstate, and Liberty Mutual all run credit checks. The only exceptions are in the four states that ban the practice entirely.
Key Organizations That Shape Credit-Based Insurance Rules
The National Association of Insurance Commissioners (NAIC) creates model laws and guidelines that states can adopt. The NAIC has published guidance explaining how credit-based insurance scores work and how they differ from regular credit scores.
FICO builds the scoring models that most insurers use. FICO creates both credit risk scores and insurance scores, and each type uses different formulas even though both draw from credit report data.
LexisNexis provides the Attract score, which many insurers use alongside or instead of FICO’s insurance score. The Attract score runs on a 200 to 997 scale and weighs credit factors differently than FICO.
The Federal Trade Commission (FTC) conducted the most comprehensive government study on credit-based insurance scoring. The FTC’s 2007 report remains the primary federal authority on whether credit scores predict insurance risk.
State insurance commissioners regulate how insurers operate within each state. They have the power to ban, limit, or allow credit-based scoring. California’s insurance commissioner, for example, enforces the state’s complete ban on credit use in auto insurance.
How to Improve Your Credit-Based Insurance Score Step by Step
Step 1: Pull Your Free Credit Reports
You can check your credit report from Equifax, TransUnion, and Experian once a week for free. Look for errors such as accounts you didn’t open, payments incorrectly marked as late, or debts that don’t belong to you. File a dispute directly with the credit bureau if you find any mistakes.
Step 2: Set Up Automatic Payments on Every Account
Payment history carries the most weight in your insurance score. Set up autopay for at least the minimum payment on every credit card, loan, and utility account. This prevents the single most damaging event — a missed payment that stays on your report for seven years.
Step 3: Pay Down Credit Card Balances Below 30%
Calculate your total available credit across all cards. Divide your total balances by that number. If the result is above 0.30, focus on paying down balances until you drop below 30%. This single change can boost your insurance score within one to two billing cycles.
Step 4: Stop Applying for New Credit
Every hard inquiry shaves points off your score. If you’re planning to shop for car insurance in the next 6 months, avoid applying for new credit cards or loans during that period. Let your existing accounts age and stabilize.
Step 5: Keep Old Accounts Active
Use your oldest credit card for one small purchase each month and pay it off in full. This keeps the account active, extends your credit history length, and improves your credit utilization ratio at the same time.
Step 6: Re-Shop Your Insurance After Each Credit Improvement
Once your credit score moves up by even one tier — say from “poor” to “fair” or “fair” to “good” — get new quotes from at least five insurers. Your current insurer may not reduce your rate automatically. Switching companies after a credit improvement is often the single fastest way to save money.
Does Paying Car Insurance Build Your Credit?
No. Paying your car insurance on time does not build your credit score. Insurance companies do not report your payment history to the three major credit bureaus. Your on-time insurance payments are invisible to Equifax, TransUnion, and Experian.
There is one exception that works against you. If you stop paying your insurance bill and the insurer sends your account to a collections agency, that collections record will appear on your credit report. A single collections account can drop your credit score by 100 points or more and stay on your report for seven years.
FAQs
Does getting a car insurance quote hurt my credit score?
No. Insurance companies use a soft pull to check your credit when you request a quote. Soft pulls do not affect your credit score in any way.
Do all states allow credit-based insurance scoring?
No. California, Hawaii, Massachusetts, and Michigan ban it for auto insurance. Maryland, Oregon, and Utah impose partial restrictions on credit use.
Can I get car insurance with no credit history?
Yes. All insurers will sell you a policy, but most treat no credit history the same as poor credit. Expect higher rates until you build credit.
Does my credit score matter more than my driving record?
No. Your driving record is the single biggest factor in your premium. A clean record with poor credit still costs less than a bad record with good credit.
Will my rate go down automatically if my credit improves?
No. Most insurers do not automatically lower your premium when your score rises. You need to request a re-quote or switch companies to capture savings.
Can an insurer deny me coverage because of bad credit?
No in most states. Insurers can charge you more, but most state laws prevent them from denying coverage based on credit alone. Some states add extra protections.
Is a credit-based insurance score the same as a FICO score?
No. They use different formulas, different score ranges, and predict different things. Your FICO predicts missed payments; your insurance score predicts filed claims.
Does paying off debt lower my car insurance rate?
Yes, if it improves your credit-based insurance score. Paying off debt reduces your credit utilization ratio, which can move you into a better insurance tier.
Do married couples get better insurance scores?
No, not directly. Marriage itself does not change your credit-based insurance score. Married couples may benefit from joint accounts that build longer credit histories.
Can I check my credit-based insurance score?
Yes. You can purchase your FICO Insurance Score through FICO’s website or request it from LexisNexis. Some insurers will disclose your score if you ask.
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