Does My Credit Score Affect My Car Insurance?

Car key on an insurance policy. Toned warm.

We all know that a low credit score can affect the interest rates you are offered on credit cards, mortgages, and auto loans, but can a poor credit score affect the rate on your car insurance?

Unless you live in California, Hawaii, or Massachusetts, where it is illegal to base car insurance off a credit score, your credit can be used as a factor in determining your rates.

What is a Credit Score?

A credit score is a three-digit number, which ranges from 300 to 850, that lenders and other companies use to determine how likely it is for you to repay a loan on time. Generally, anything over 700 means you have good credit, so you will qualify for better interest and car insurance rates and likely be offered a loan. The exact formula for determining your credit score is confidential, but major factors include:

  • Payment history (35%): Do you have a history of making payments on-time? This is the most important factor in determining your score.
  • Credit Utilization (30%): This is how much you owe in comparison to the amount of credit available to you. You want to owe as little as possible, but to maintain a good score, you want to stay below a 30% debt-to-credit ratio. So if you have $5,000 in available credit, you want to owe no more than $1,500.
  • Length of Credit History (15%): The average age of your account. The longer you have accounts open, the better.
  • New Credit (10%): The amount of accounts you have recently opened. If you have recently opened many new accounts, this could be a red flag to lenders that you are facing financial difficulties.
  • Credit Mix (10%): You want to have a diversified list of accounts such as credit cards, auto loans, mortgages, etc. You do not want to have, for example, only credit card accounts on your report.

Credit-Based Insurance Scores

The credit score that insurance companies see is not based on your job, income history, gender, or any other personal information. A credit-based insurance score is based on your financial history, and insurers use this score to determine how risky it is to insure you. Research from the University of Texas and the Federal Trade Commission both indicate people with better credit are less likely to get into an accident.

Insurance companies will likely obtain your score from a different provider than a traditional lender would, so your score may be slightly different. esurance, for example, gets your credit-based insurance score from Lexis Nexis. However, Lexis Nexis obtains your FICO score as a part of its report, so insurance companies will consider the same factors as a potential lender, including your credit and payment history, your amount of debt, the number of credit inquiries, and accounts in collection.

Improving Your Credit Score

Since your credit score will affect your insurance rate, you will want to work on improving your score as much as possible. There are a number of ways to improve your credit score, but in brief, some tips include:

  • Pay down debt: Improving your debt-to-credit ratio is important for improving your score. If you cannot make large payments, consider making micropayments.
  • Do not close accounts: Closing accounts can increase your debt-to-credit ratio, so unless you have a good reason, keep your accounts open.
  • Avoid applying for new cards: Remember that credit inquiries can decrease your score.
  • Make all of your payments on time. The single most important factor in determining your credit score is payment history, so you do not want to miss any payments.

Your credit score is just one factor that insurance companies will use to determine your rate. They will also take into account your driving history, claims history, and other factors, including the type of car you drive and how often you drive. Since auto insurance companies are most interested in the likelihood that you will get into an accident, a stellar driving history and lack of claims will be weighted as more important than your credit score. Thus, if you have a great credit score but a history of accidents, you will not be offered as good a rate as someone with good credit who has no accidents.

About John H. Oldshue

John Oldshue is the creator of He worked for over 15 years in television and won an Emmy award for his reporting. He covers credit card rate issues for
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