Does Credit Score Affect Car Insurance?

Your credit score can impact your car insurance rate. Learn how credit-based insurance scores work, and what you can do about it.

Updated: September 20, 2023

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Car insurance can be a considerable expense, and you may be wondering how your credit score can impact your car insurance rate. On average, a driver with bad credit will pay 71% more than a driver with good credit. That can come out to about $1,000 more annually. 

In addition to your credit history, several factors contribute to your rate, including your age, driving habits, and car type. 

How Does Credit Score Affect Insurance Rates? 

90% of auto insurance companies consider a driver’s credit history when determining insurance rates. Drivers with good credit are much more likely to receive a better insurance rate than drivers with poor credit. It can be the difference of hundreds of dollars a month. 

How Is Your Credit Score Calculated? 

A number of factors determine your FICO credit score: 

  1. Payment history: 35%

  2. Debt owed: 30%

  3. Length of credit history: 15%

  4. Types of credit used: 10%

  5. New credit: 10%

Credit scores range from 300 to 850. A higher credit score indicates a better credit history. With a higher credit score, you can expect lower rates on credit and better chances of credit approval. 

You can check your credit report once a year from each of the three credit bureaus for free. 

How To Improve Your Credit Score

Improving your credit score can make a major difference if you are looking for ways to reduce your auto insurance rate. Here are some ways to improve your credit score over time: 

  1. Make all credit payments on time

  2. Pay off all late payments as soon as possible 

  3. Lower your debt-to-income ratio by paying off current debt

  4. Check your credit report to ensure all credit information is accurate

  5. Refrain from taking on additional debt

Improving your credit score can seem like a daunting and time-consuming task. However, it will be worth it in the long run. You can potentially lower your auto insurance rate and improve loan terms and rates across all credit types. 

Credit Score vs. Credit-Based Insurance Score

In most states, car insurance companies will calculate a credit-based auto insurance score using your credit history. In states where it is a legal practice, your credit-based auto insurance score will be a factor used to determine your rates. 

A commonly cited Federal Trade Commission study shows the correlation between credit and the likelihood that a driver will file for insurance claims. Since drivers with better credit are statistically less likely to file a claim, they will receive better auto insurance rates than drivers with lower credit scores. 

Your credit-based auto insurance score is calculated differently than your credit score. Here is how insurers calculate your credit-based auto insurance score: 

  1. Payment history: 40%

  2. Debt owed: 30%

  3. Length of credit history: 15%

  4. New credit: 10%

  5. Types of credit used: 5%

There are states that prohibit the use of credit in determining car insurance rates. California, Michigan, Hawaii, and Massachusetts have made this practice illegal. However, in all other states, your credit-based auto insurance score and credit history can be used as a factor in determining your rate. 

How Getting A Car Insurance Quote Will Impact Your Credit Score

Insurance quotes will not hurt your credit score. Insurers will check your credit during the process of determining your insurance quote, but it will be a soft pull.

A soft pull does not show up on your credit report or hurt your credit score. A hard pull, however, will hurt your credit score if you have many within a short period of time. The hard pull will impact your credit because you are actively applying for credit, whereas a soft pull is used for preapproved offers. 

Before getting a quote or applying for insurance, understand whether a soft or hard credit pull is required. 

Other Factors That Determine Your Auto Insurance Rate

Besides your credit-based auto insurance score, there are several other factors that impact your insurance rate: 

  • Driving record: Your driving history will greatly impact auto insurance rates. A clean record with no accidents or traffic violations will likely result in lower rates. 

  • Demographics: Age, gender, and marital status may impact your insurance rates. Younger and less experienced drivers will have higher insurance rates because they are considered to be a greater risk.

  • Where you live: Residing in a location with higher traffic or frequent accidents may raise your rates. 

  • Vehicle type: Make, model, year, and safety features of your car will be considered. More expensive vehicles may have higher insurance premiums. 

  • Usage: The purpose of your vehicle, whether for personal, commuting, or business reasons, can impact your rate. 

  • Type of insurance, coverage options, and deductibles: These factors are specific to the insurance plan. 

How To Get A Better Deal On Your Car Insurance

If you are working on improving your credit score to get a more favorable insurance rate, there are some other steps you can take in the meantime: 

  1. Shop around for a better rate: You may be able to find a better deal on your car insurance. Use Navient Marketplace to compare offers from insurance companies. 

  2. Contact your insurance agent: Speak with your agent to see if there is anything you can do to lower your current rate. 

  3. Practice responsible driving: A clean driving record makes a driver less likely to file an insurance claim. You may qualify for discounts for going a certain number of years without any accidents or traffic tickets. 

  4. Consider your car choice: If you are in the market for a new car, the type of car you get will impact your insurance rate. Some vehicles are more expensive to repair or more prone to theft. Before choosing a new car, check with your insurance company to see how that may change your rate. 

  5. Get rid of unnecessary coverage: Examine your insurance pricing and policy to see if you can cut down on unnecessary coverage such as comprehensive and collision coverage on older cars. 

  6. Get a usage-based insurance (UBI) policy: UBI plans more accurately assess your risk and can lower your monthly payments. If you are a responsible driver and can cut back on driving, this type of plan may benefit you. 

Compare Auto Insurance Offers

Navient Marketplace makes it easy to see auto insurance offers from top insurers. Compare auto insurance offers on Navient Marketplace today! 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

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