How Credit Scores Affect Your Insurance

People with poor credit expect to pay more when borrowing money. But many people don’t understand that not taking care of your finances can also impact how much you pay for car insurance. Two drivers with the same car and living in the same neighborhood could pay vastly different premiums just based on their credit scores. In fact, a 2026 Insurify analysis found that drivers with poor credit pay 40% more for insurance than someone with good credit. But the good news is that you can take actionable steps to improve your credit score and save money on auto insurance. Here’s why your credit score affects insurance premiums, the five factors that make up your score, and how to boost your credit quickly.

Why Insurers Care About Your Credit Score

Studies show that drivers with low credit scores are more likely to file claims because they don’t have the money to pay for repairs out of pocket. Conversely, when you have a higher credit score, you’re more likely to pay for repairs yourself to avoid filing a claim. In my experience, the more claims you file or the more likely you are to file a claim, the higher your insurance costs are. Insurance companies price their policies based on the risk of a payout and the expected payout amount.

It’s not just a handful of insurers that use credit scores to set policy rates. FICO estimates that 95% of auto insurers use a credit-based insurance score to set premiums. While the auto insurance score isn’t exactly the same as the credit score used when borrowing money, they are very similar.

Fortunately, auto insurance scores act differently than traditional credit scores, so getting a quote doesn’t hurt your score. Instead of a hard inquiry that can drop your score by up to five points, car insurance companies do a “soft pull” when quoting your premiums.

Your Credit Score vs. Your Insurance Score

When thinking about your credit score, many people don’t understand that there are actually multiple versions. While credit scores for borrowing are most commonly used, credit agencies like Experian, Equifax, and TransUnion customize other scores to match the needs of the companies that review them.

While the five factors remain the same, they are weighted differently for auto insurance premium purposes. According to the NAIC, FICO scores and auto insurance scores differ in that they are weighted more heavily toward payment history and less reliant on the mix of credit you’re using.

How Much Can Bad Credit Cost You?

When borrowing money, it is easier to see how much bad credit costs you. Instead of getting a mortgage at 6%, someone with bad credit may pay 7% or more. But how much does bad credit impact your car insurance rates?

A 2026 analysis by The Zebra examined 83 million car insurance quotes and found that drivers with Very Poor credit (scores below 523) pay an average of $6,254 per year for full coverage. Compare that with drivers who have Exceptional credit (823 and above), who pay just $1,673 per year for the same policy.

This is a major gap in premiums, but it reinforces two financial concepts – it pays to shop around, and you have to take control of your finances if you want to save money.

In my experience, drivers who stick with the same insurance company year after year often pay more than those who shop around. Keep in mind that not all carriers penalize bad credit equally. While some charge a substantial penalty, others are more forgiving.

The difference in premiums also depends on where you live. If you live in California, Hawaii, Massachusetts, and Michigan, those states have outlawed the use of credit scores in car insurance premiums.

The Five Factors of Your Credit Score and How They’re Weighted

Knowing what goes into your credit score helps you understand how your behavior affects it. Keep in mind that each time your credit is pulled, it is a snapshot in time. Your credit score can change whenever a creditor updates the credit bureaus with new information (generally after each statement period closes).

And like traditional credit scores, insurance scores also do not factor in your income levels or employment history into their calculations.

How to Improve Each Factor and Lower Your Premium

Now that you know what factors go into your credit score and how much they’re weighted, you can take steps to improve on them. Some portions of your score can be improved quickly (credit utilization), while others (payment history) take longer to establish.

Here are tips for each factor that you can implement today.

1. Payment History. One of the simplest tips I share with clients is to set up automatic payments for the minimum amount due. Not only does it eliminate late payments that can negatively impact your credit score, but it also avoids late fees charged when your payment doesn’t arrive in time. If you’re not comfortable doing that, set calendar reminders a few days before your due date to give yourself ample time to manually make a payment on time.
2. Amounts Owed. The amounts owed on credit cards compared to your credit limit is called “credit utilization.” Ideally, you should keep your utilization under 10%, but 30% or less is a solid goal for the average person. Even if you can’t reach this goal right away, paying down your balances is a step in the right direction that benefits your credit score.
3. Length of Credit History. Lenders like to see that you can keep accounts in good standing over long periods of time. Don’t close old accounts, even if you don’t use them. The age of your oldest account and average account age both matter. Some banks close accounts that aren’t used, so set up a small recurring charge on your oldest cards to keep them active.
4. Credit Mix. Having a healthy mix of installment loans (auto, mortgage) and revolving credit (credit cards) signals your ability to handle different types of debt. However, don’t take out a loan just to try to boost this portion of your credit score.
5. New Credit. Each time a hard inquiry appears on your credit report, it affects this factor. Avoid applying for multiple new credit cards or loans within a short window, as the impact can compound. However, shopping around for a mortgage or auto loan within a short window counts as only one inquiry on your score.

Other Ways to Lower Your Car Insurance Rate

Whether you have excellent credit or are working on improving your score, there are other ways you can lower auto insurance premiums.

• Shop multiple carriers (especially important with bad credit because pricing varies widely)
• Lower your coverage limits or cancel unnecessary coverage (comprehensive may not be needed for older or low-value vehicles)
• Ask about discounts: bundling, good driver, low mileage, defensive driving courses
• Consider raising your deductible if you have emergency savings to back it up

The Bottom Line

Your credit score isn’t just a tool for lenders. It is also used by most insurance companies to determine rates. While the five factors are the same, insurance credit scores place greater weight on your payment history to determine whether you’re a good risk. If your score is lower than you’d like, you can take action today to improve each factor and boost your score. Some factors take time, while others can impact your score almost immediately. When your score improves, not only can you save money on car insurance, but you may also qualify for lower rates on your mortgage, auto loan, credit cards, and other types of debt.

The information provided on this website is for general informational and educational purposes only and should not be considered legal, financial, or insurance advice. While we strive to keep content accurate and up to date, insurance laws, policies, and regulations can vary by state and may change over time.

Nothing on this site constitutes professional advice or a recommendation of any specific insurance product, provider, or strategy. You should consult with a licensed insurance agent, financial advisor, or legal professional regarding your individual situation before making any decisions.

Sources

• Insurance.com, Does credit score affect car insurance in 2026? Published January 8, 2026.
• Insurify, Drivers With Bad Credit Pay 40% More for Car Insurance — And Think They’re Getting a Good Deal. Published April 1, 2026.
• FICO, Do Insurance Companies Use Credit Data? Published October 21, 2020.
• National Association of Insurance Commissioners, Credit-Based Insurance Scores. Published March 19, 2026.
• MyFICO, Does Checking Your Credit Score Lower It? Accessed July 4, 2026.
• National Association of Insurance Commissioners, Credit-Based Insurance Scores Aren’t the Same as a Credit Score. Understand How Credit and Other Factors Determine Your Premiums. Published July 22, 2020.
• Experian, What Affects Your Credit Scores? Published July 30, 2025.
• The Zebra, Study: People with the worst credit pay more than 3x more for car insurance. Published October 16, 2025.
• ValuePenguin, How Does Your Credit Score Affect Auto Insurance Rates in 2026? Published June 30, 2026.