Yes, your credit score directly affects what you pay for car insurance
Most car insurance companies use your credit score to set your rates. A lower credit score typically means higher premiums, sometimes significantly higher. This practice is legal in all 50 states, though a few states limit how much insurers can use credit as a rating factor.
The connection between credit and insurance rates exists because insurers have found that people with lower credit scores file more claims overall. Whether that correlation reflects actual driving risk or financial stress is debated, but the pricing practice itself is standard across the industry.
If your credit score has dropped, you may see your rates increase at renewal time. If you've improved your score, you may see rates decrease — though you'll need to ask your insurer to re-rate you, since they don't always do this automatically.
Key Takeaways
- Insurance companies in most states legally use credit scores as one factor when calculating your car insurance premium.
- A lower credit score usually results in higher rates, even if you have a clean driving record.
- The impact varies by insurer and state; some companies weight credit more heavily than others.
- You can ask your insurer to re-rate your policy if your credit has improved, rather than waiting until renewal.
- A few states restrict how much weight insurers can give to credit scores when setting rates.
Which states limit credit-based insurance rates
California, Hawaii, and Massachusetts prohibit insurers from using credit scores to set rates at all. In these states, your credit history cannot factor into your premium calculation.
Maryland and Virginia allow insurers to use credit information, but only in limited ways. They restrict how much of a rate difference credit can create compared to other factors like driving record and claims history.
If you live in one of these states, your rates will be based on driving history, accidents, violations, and other traditional underwriting factors — but not your credit score. If you move to a state with different rules, your rates may change at your next renewal.
How much your credit score can raise your rates
The dollar impact depends on your insurer, your state, and how low your score is. Some companies apply a 10 to 15 percent increase for poor credit, while others may increase rates by 50 percent or more. There is no single standard across the industry.
A person with a credit score below 580 will typically see the largest increases. Someone with a score between 580 and 669 may see a moderate increase. Scores above 670 usually receive standard or better rates, though the exact thresholds vary by company.
The best way to know the impact on your specific policy is to contact your insurer and ask. Many will tell you what your rate would be with a higher credit score, so you can see the actual dollar difference.
What counts as "credit" for insurance purposes
Insurance companies use your credit-based insurance score, which is different from the credit score you see on your credit report. It's calculated using similar information — payment history, amounts owed, length of credit history, credit inquiries, and credit mix — but weighted differently than a traditional credit score.
Insurers do not look at the reason behind your credit problems. A missed payment from a job loss, a medical emergency, or a divorce counts the same way as any other late payment. They're looking at the pattern of your financial behavior, not the circumstances.
Hard inquiries (when you apply for new credit) can lower your score temporarily. If you're shopping for insurance quotes, multiple inquiries from insurance companies typically count as one inquiry if they happen within a short window, so getting several quotes shouldn't hurt your score.
How to improve your insurance rates if your credit is low
The fastest way to lower your rates is to improve your credit score. This takes time — typically several months to a year — but it's the most direct path. Pay all bills on time, pay down existing balances, and avoid opening new credit accounts unnecessarily.
In the meantime, ask your insurer whether they offer discounts that might offset the credit-based increase. Common discounts include bundling home and auto policies, paying your premium in full upfront, maintaining continuous coverage, completing a defensive driving course, or having safety features in your vehicle.
If your current insurer's rates are too high, get quotes from other companies. Different insurers weight credit differently, so a company that heavily penalizes low credit might charge you more than one that uses it as a minor factor. Shopping around can save you money even with the same credit score.
Whether disputing credit errors will lower your insurance rates
If your credit report contains errors — a late payment you didn't make, an account that isn't yours, or incorrect account status — disputing those errors with the credit bureau can improve your credit score. Once your score improves, you can ask your insurer to re-rate your policy.
Contact the three major credit bureaus (Equifax, Experian, and TransUnion) to request a free copy of your credit report. Review it for inaccuracies. If you find errors, file a dispute with the bureau directly; they have 30 days to investigate.
After the dispute is resolved and your score improves, contact your insurance company. Some insurers will re-rate you immediately; others may wait until your policy renews. It's worth asking, because the rate reduction could be substantial.
What happens to your rates if your credit drops suddenly
Most insurers check your credit score at renewal time, not continuously throughout the year. If your credit drops mid-policy, your rates typically won't change until your next renewal date.
However, some companies may check credit during the renewal underwriting process and apply new rates based on your current score. A few insurers also re-rate if you have a major life event like a claim or a violation added to your driving record.
If you know your credit is about to drop — because you're paying off a large debt, disputing an error, or dealing with a financial hardship — you might consider locking in your current rate by renewing early if your policy allows it. Ask your insurer whether early renewal is an option.
Frequently Asked Questions
Can an insurance company deny me coverage because of my credit score?
No. A low credit score can raise your rates, but it cannot be the sole reason an insurer denies you coverage. They can refuse to insure you for other reasons — a serious driving record, too many claims, or not meeting their underwriting guidelines — but credit score alone is not grounds for denial.
Does checking my own credit score hurt my insurance rates?
No. Checking your own credit report or score is a soft inquiry and does not affect your credit score or your insurance rates. Only hard inquiries (when you apply for new credit) can lower your score slightly, and insurance quote inquiries typically count as one inquiry even if you get multiple quotes.
Will paying off my credit card balances immediately lower my insurance rates?
Paying off balances will improve your credit score over time, but the effect isn't immediate. It typically takes one to three billing cycles for the change to show up on your credit report. Once it does and your score improves, you can ask your insurer to re-rate you, which may lower your premium.
Do all insurance companies use credit scores the same way?
No. Different insurers weight credit differently in their rating models. Some companies may increase rates by 10 percent for poor credit, while others increase by 50 percent or more. This is why shopping around for quotes can save you money, even if your credit score stays the same.
If I move to a state that doesn't allow credit-based rates, will my rates go down?
Possibly. If you move to California, Hawaii, or Massachusetts, your new insurer cannot use credit to set rates. However, your rates will be based on other factors like driving record, age, and vehicle type, so the overall premium depends on your full profile, not just the credit factor being removed.