Do Auto Insurance Companies Consider Your Credit Score?

How Does Your Credit Score Affect Your Insurance Rates?

Your credit-based insurance score can affect your eligibility for auto insurance and how much you pay in premiums.

The details depend on the insurance company and state regulations, but insurers might use credit-based insurance scores as a factor during:

• Underwriting: The process to decide who to insure and how much coverage to offer.
• Rating or tiering: Methods for deciding how much to charge for a policy.

Good credit might give you more options and lead to paying less for insurance. Conversely, poor credit could make it more difficult to get insurance or lead to higher premiums. However:

• Insurance companies don't use the same scores as lenders. Credit-based insurance scores are designed to predict the statistical likelihood that you will file insurance claims that cost the company more than it collects in premiums. In contrast, the credit scores that lenders use (also called credit risk scores) predict the risk of someone missing a payment by at least 90 days.
• Your credit-based insurance score is only one factor. Although your credit can be a factor, insurance companies generally can't make a decision based solely on your credit history or credit-based insurance scores. They also might not be able to deny your application or increase your premiums if you don't have a credit history.

Additionally, the following states restrict or ban insurance companies from using credit history or credit-based insurance scores when issuing, pricing or renewing auto policies:

• California: Banned
• Hawaii: Banned
• Maryland: The insurance company can only consider your credit when it's first setting your rates.
• Massachusetts: Banned
• Michigan: The insurance company can only consider your credit when it's deciding whether to offer you an installment payment plan.
• Oregon: The insurance company can only consider your credit when it's first setting your rates.
• Utah: The insurance company can only consider your credit when it first offers you a policy and during the first 60 days that you're a customer.

Why Do Insurance Companies Check Your Credit Score?

Insurance companies check your credit and use credit-based insurance scores because they believe the information will help them choose whether to insure you and how much to charge in premiums.

If a company can better determine how much someone will cost to insure, it can charge people who will likely file less expensive claims lower premiums and those who will file more expensive claims higher premiums. Credit-based insurance scores are only one of many factors in these decisions, but they can sometimes have a significant impact and they can affect many drivers.

In 2017, the Arkansas Insurance Department studied the impact of credit-based insurance scores on premiums. It found that the use of credit-based insurance scores decreased premiums on 57.4% of auto policies and increased premiums on 23.4%. The scores had no effect on the remaining 19.2% of policies.

Learn more >> How Much Does Your Credit Score Affect Auto Insurance Rates?

Can You Check Your Credit-Based Insurance Score?

You might be able to check some of your credit-based insurance scores, but it won't be as straightforward as checking the credit scores that lenders use. If you're curious about your credit-based insurance scores, you might want to:

• Look online. You might find an app that includes a credit-based insurance score as part of a free or paid membership.
• Ask an insurance agent. See if your insurance agent has access to your credit-based insurance score and whether they can share it.
• Get an insurance quote. You should receive an adverse action notice if you get an insurance quote and the insurance company doesn't offer you a policy or charges you a higher premium because of your credit. The notice might include the credit-based insurance score that the company used, along with the main factors that affected your score.

Similar to how creditors can use different types of credit scores, insurance companies can choose from various credit-based insurance scores. For example, FICO, TransUnion and LexisNexis all create credit-based insurance scores, and insurance companies also develop their own scores.

Even if it's interesting to see, the score you check might be different from the one that an insurance company uses. Also, unlike credit scores for lending purposes, auto insurance scores don't necessarily range from 300 to 850. The score ranges can also vary from one type of score to another, so there isn't a specific score or range that's considered good or bad.

Does an Insurance Quote Hurt Your Credit Score?

Getting insurance quotes doesn't hurt your credit-based insurance score or other credit scores.

When an insurance company checks your credit, a record of the credit check—a credit inquiry—may be added to your credit report. But insurance credit checks are soft inquiries that don't affect your credit scores.

A hard inquiry, a record of a credit check for lending purposes, might hurt your insurance and credit risk scores a little. But a single hard inquiry tends to only have a small and temporary impact on your scores.

Since getting a quote won't affect your scores, regularly getting quotes might be a good way to find out if you could save money by switching insurance companies.

Learn more >> How to Get an Auto Insurance Quote

What Additional Factors Affect Car Insurance Rates?

Even if an insurance company considers your credit, other factors may play a larger role in determining whether you qualify and how much you pay. Some of these include:

• Your driving record: A good driving record can help you get lower auto insurance rates.
• Where you live: It may be less expensive to insure a vehicle if you live somewhere with low vandalism, theft and accident rates.
• Your demographics: Your age, sex and marital status can often impact your rates.
• The vehicle's make and model: Some vehicles are more expensive to insure than others, which is one thing you may want to consider when buying a vehicle.
• Your coverage types and amounts: Auto insurance includes different types of coverage, such as liability, collision and comprehensive coverage. Your deductibles and insurance limits also affect your rates.
• Insurance discounts: You may be eligible for a wide range of discounts that can lower your insurance rates, such as multi-policy, safe driver and low-mileage discounts.
• The insurance company: Auto insurance providers may specialize in different types of coverage or drivers and weight factors differently. Getting quotes from several companies can help you find the best rate.

Learn more >> Factors That Affect Your Car Insurance Costs

How to Improve Your Credit Score Before Applying for Car Insurance

Credit-based insurance scores are largely based on the same factors as your other credit scores. You may be able to improve your scores in many ways:

• Pay your bills on time. Making loan and credit card payments on time is one of the most important things you can do to improve your credit scores. Missing payments, having accounts sent to collections and filing for bankruptcy can hurt your credit-based insurance and credit risk scores.
• Pay down credit card balances and loans. Having large loan balances can hurt your credit scores, as can using a large portion of your available credit limit on your credit cards. Try to only use a small portion of your cards' available credit and then pay the bill in full each month to help your score and save you money on interest.
• Use revolving and installment credit. Having a mix of credit accounts including open credit cards and installment loans (such as an auto loan) can help your scores.
• Apply for new credit sparingly. Applying for new credit can result in a hard inquiry, which might temporarily hurt your scores. New accounts can also lower the average age of your credit accounts, which could hurt your scores.
• Review your credit reports for errors. Closely review your three credit reports from the major consumer credit bureaus (Experian, TransUnion and Equifax) for any inaccurate information that might be hurting your credit scores. You have the right to dispute errors for free, and the credit bureaus will review your report and then verify, correct or delete the information.

Learn more >> How to Improve Your Credit Score

Check Your Credit Report and Compare Insurance Quotes

Although you won't receive a credit-based insurance score, you can check your credit report and FICO^® Score^☉ for free from Experian. After you create an account, you can also use Experian's free auto insurance comparison feature to compare quotes from top insurance companies. The feature can also notify you if rates drop in your area and help you switch policies and get a partial refund from your previous policy.