In many states, insurance companies are allowed to use a credit-based insurance score as one factor in setting auto premiums. That score is not identical to the credit score you see from a lender, but it can use information from your credit history. The rules vary by state, and some states restrict or prohibit the practice.
Why Insurers Look at Credit
Insurers use statistical models to estimate the likelihood and cost of future claims. In states where it is permitted, credit-based insurance information can be part of that calculation alongside driving history, location, vehicle, age and coverage choices.
Your Lending Score and Insurance Score Are Different
A lender's credit score is designed to predict repayment risk. A credit-based insurance score is designed for insurance risk modeling. The exact formulas are proprietary and can weigh factors differently, so a change in one score does not necessarily create an identical change in the other.
States Can Have Different Rules
Because insurance is regulated at the state level, restrictions differ. If you are unsure whether credit information can be used where you live, check your state department of insurance or ask the insurer directly.
Ways to Improve the Financial Factors You Can Control
- Pay bills on time.
- Keep revolving balances low relative to limits.
- Correct errors on your credit reports.
- Avoid unnecessary new accounts right before major financial applications.
- Maintain continuous auto-insurance coverage.
Bad Credit Does Not Mean You Should Skip Shopping Around
Insurers price risk differently. Even if credit is hurting your premium, one company may be much more competitive than another. Compare the same coverage limits and deductibles so the quotes are truly comparable.
If your credit is also affecting auto financing, read our guide to credit and auto-loan rates before your next vehicle purchase.
Ready to Shop With a Payment in Mind?
Knowing the numbers before you shop can make the entire process feel more manageable. AllCreditAutos.com helps connect shoppers across a wide range of credit profiles with participating dealers. Complete our quick application to explore vehicle and financing options that fit your budget, then compare the full deal before you sign.
