Does Credit Score Affect Car Insurance?

When shopping for car insurance, most people expect factors like driving history, vehicle type, and location to influence their rates. But one detail that often surprises drivers is credit score.

In many states, insurance companies can use a credit-based insurance score as one of several tools to help determine your premium. This score isn’t quite the same as the one used for loans or credit cards, but it’s based on similar financial behaviors.

Understanding how your credit can impact your car insurance rate is an important step toward making informed coverage decisions and potentially saving money.

How Credit Scores Affect Car Insurance Rates

You might not think your financial habits have much to do with your driving record, but in many states, credit can play a role in how much you pay for auto insurance. Insurance companies use something called a ‘credit-based insurance score’ to help assess risk and determine pricing.

The Difference Between a Credit Score and a Credit-Based Insurance Score

A traditional credit score is used by lenders to evaluate how likely you are to repay a loan or line of credit. It’s based on things like your payment history, credit utilization, and length of credit history.

A credit-based insurance score, on the other hand, is a separate calculation used by insurers to help predict the likelihood that a driver will file a claim. While it uses similar data from your credit report, it’s tailored specifically for insurance risk, and it’s not the same score a bank or credit card company would use.

How Insurance Companies Calculate Insurance Scores

Insurance companies use selected information from your credit report to calculate an insurance score. Factors may include your history of on-time payments, the amount of outstanding debt, the length of your credit history, and the types of credit accounts you manage.

Insurers do not consider personal information such as your ethnicity, income, marital status, or age to determine your credit-based insurance score. The focus is strictly on credit behaviors shown to correlate with insurance risk.

Why Do Insurers Use Credit Information?

Studies from organizations like the National Association of Insurance Commissioners (NAIC) have found a strong correlation between credit-based insurance scores and the likelihood of filing a claim.

Drivers with lower insurance scores are statistically more likely to file claims than those with higher scores. Insurers use this data to help set rates that are more accurately aligned with the level of risk a customer may present.

What Percentage of Insurers Use Credit Scores?

Credit information has become a standard part of how insurance premiums are calculated. In fact, around 95% of auto insurers now use credit-based insurance scores in states where it’s allowed. It’s one of many tools insurers use to help price policies fairly and predict future claims activity more accurately.

What Goes Into Your Credit-Based Insurance Score?

A credit-based insurance score is different from a standard credit score, but it's built using similar financial information. While the exact formula may vary by company, there are a few key factors that most insurers consider when determining rates.

Payment History

Your history of on-time or late payments is one of the most important elements of your insurance score. Consistently paying bills on time suggests financial responsibility, while frequent late payments can raise concerns about risk. Even one or two late payments may affect your score.

Outstanding Debt

The amount of credit you're currently using compared to your available credit limits plays a role in your score. High balances can indicate financial strain, while lower debt levels may suggest more stable financial habits. Keeping your credit utilization low is generally viewed positively.

Length of Credit History and Types of Credit

How long you’ve had credit and the types of accounts you use both factor into your insurance score. A longer credit history shows stability, while a healthy mix of installment loans (like car loans or mortgages) and revolving accounts (like credit cards) can indicate responsible credit management. Short credit histories or a lack of diversity in credit types may negatively impact your score.

Recent Applications (Hard Inquiries)

When you apply for new credit, lenders perform a hard inquiry on your report. A few recent inquiries may be considered by insurers, although they usually carry less weight than other factors. Too many inquiries in a short period can signal increased financial risk.

State Laws: Where Credit Score Can and Cannot Affect Car Insurance

Credit-based insurance scores are commonly used across the country, but not every state allows insurers to include credit information when determining auto insurance rates.

State laws vary, and in some cases, federal oversight or emergency declarations may temporarily change how pricing is handled. Knowing what applies in your state can help you better understand your premium.

States That Restrict Credit Score Use in Car Insurance

A few states have passed laws that either limit or ban the use of credit-based insurance scores in car insurance pricing, including:

• California
• Hawaii
• Massachusetts
• New York

These regulations are often designed to promote fairness and prevent financial hardship from leading to higher insurance costs, particularly for consumers with limited credit histories. For more information about how your state handles credit-based insurance scores, visit your state’s Department of Insurance website.

Federal Oversight and Catastrophic Event Declarations

In the aftermath of major disasters, federal or state governments may issue emergency declarations that affect how insurance companies operate.

During these periods, insurers may be temporarily restricted from using certain rating factors, including credit information, to help protect consumers facing sudden financial disruptions. These temporary measures are meant to stabilize pricing and ensure access to coverage during times of widespread hardship, such as after hurricanes, wildfires, or public health emergencies.

Extraordinary Life Circumstances and Car Insurance Premiums

Life doesn’t always go according to plan, and certain major events can have a lasting impact on your credit. If you’ve experienced a significant hardship, you may be eligible to request a review of your car insurance premium. Many insurers have policies in place to ensure customers aren’t unfairly penalized for situations outside of their control.

Types of Extraordinary Circumstances Considered

Certain life events can temporarily affect your credit through no fault of your own. If you've experienced a major hardship, your insurer may take that into account when reviewing your premium. Commonly accepted extraordinary circumstances include:

• Military deployment
• Natural disasters such as hurricanes, floods, or wildfires
• Serious illness or injury
• Divorce or legal separation
• Death of an immediate family member
• Identity theft
• Involuntary job loss

These events are typically viewed as temporary setbacks, and insurers may offer relief if they’ve had a significant impact on your credit.

Requesting Reconsideration Due to Special Circumstances

If you believe your premium doesn’t reflect your true risk due to an extraordinary life event, you can contact your insurer to request a reconsideration.

Most companies will ask for documentation that confirms the event and shows how it affected your financial standing. This may include medical records, job termination letters, police reports, or other relevant paperwork. Once submitted, the insurer will review your information and determine if an adjustment to your rate is appropriate.

How to Improve Your Credit Score—and Potentially Lower Your Car Insurance Premiums

While not every factor affecting your premium is within your control, your credit habits are one area where small changes can make a big difference. Improving your credit over time may help you qualify for a better credit-based insurance score, which could lead to savings on car insurance.

Tips for Building and Maintaining Good Credit

Good credit starts with consistent financial habits. Here are a few steps you can take to improve or maintain your credit:

• Pay all your bills on time
• Keep your credit card balances low compared to your credit limit
• Check your credit reports regularly and correct any errors
• Avoid opening too many new accounts at once
• Keep older accounts open to show a longer credit history

These habits can contribute to a stronger credit profile, which in turn may benefit your insurance score.

Monitoring Your Insurance Score

Just like your regular credit score, your insurance-based score can change over time. It’s a good idea to review it periodically so you understand what factors may be influencing your premium. If you’re curious about your score or want to know how it’s being used, you can request that information from your insurer.

Communicate With Your Insurer

If your credit has improved or you’ve experienced an extraordinary life event that temporarily affected your score, reach out to your insurance company. Many insurers, including GEICO, may review your policy and reconsider your rate based on updated information. Keeping the lines of communication open can help ensure your premium accurately reflects your current situation.

What Other Factors Affect Your Car Insurance Premium?

Credit-based insurance scores are just one piece of the puzzle when it comes to setting car insurance rates. Insurers use a variety of factors to assess risk and determine what you’ll pay for coverage. Understanding these factors can help you make smarter choices that may lead to savings.

Age, Driving History, and Vehicle Usage

Your level of driving experience and your record behind the wheel are major influences on your rate. Younger drivers and those with recent accidents or violations are generally considered higher risk. How often and how far you drive also matters, because more time on the road can mean more exposure to potential claims.

Make and Model of Vehicle

Insurance premiums can vary widely depending on the car you drive. Vehicles with high repair costs, lower safety ratings, or a higher likelihood of theft often come with higher premiums. On the other hand, cars that perform well in safety tests or come with anti-theft features may qualify for discounts.

Geographic Location

Your ZIP code can influence your premium based on local traffic patterns, crime rates, weather conditions, and even repair shop availability. Some states also have specific laws around how premiums are calculated. For example, states like California, Hawaii, and Massachusetts do not allow insurers to use credit information when setting auto insurance rates.

Understanding Credit Scores and Car Insurance

Your credit-based insurance score is just one of several factors that can affect your car insurance premium, but it’s an important one to understand. By staying on top of your credit, keeping your financial habits strong, and knowing your state’s rules, you can make informed decisions that may help lower your rate.

Ready to see how your coverage options stack up? Get a fast, free quote online or talk to a GEICO insurance specialist to find the right policy for your needs.