In most states, credit history is one of the many factors insurers use to determine car insurance premiums. Even drivers with clean records can face higher rates if their credit score is considered low. The reasoning is based on statistical models that link credit behavior to claim risk. Understanding how credit influences pricing, and what steps can be taken to improve it, can lead to more affordable insurance over time.

Why Insurers Use Credit Scores

Insurance companies are in the business of predicting risk. To do this, they rely on many data points, including your age, driving history, location, and yes, your credit profile. While it may seem unrelated, insurers have found a strong statistical correlation between a person's credit score and their likelihood of filing a claim.

In simple terms, drivers with lower credit scores are statistically more likely to:

• File more frequent claims
• File higher-cost claims
• Miss premium payments

As a result, many insurers use what’s called a credit-based insurance score when setting your rate. This score is similar to your traditional credit score but is specifically tailored to insurance risk. It typically considers:

• Payment history
• Credit utilization
• Length of credit history
• New credit inquiries
• Outstanding debt

Each insurer calculates this score differently, but the general idea is the same: better credit often means lower risk, which leads to lower premiums.

Where This Applies (And Where It Doesn’t)

Not every state allows insurers to factor your credit into pricing. As of now, these states prohibit or restrict the use of credit in auto insurance rate setting:

• California
• Hawaii
• Massachusetts
• Michigan (partially restricted)
• Washington (temporary restrictions in place or under review)

In most other states, your credit score plays a significant role in how much you pay. This means two drivers with the same vehicle, location, and driving history could receive very different quotes based solely on their credit profile.

If you live in a state where credit is used, your insurer may not be required to disclose the specific impact. But you are always allowed to ask how credit factors into your rate.

How Your Credit Score Can Affect Your Rate

The difference in premiums between drivers with excellent credit and those with poor credit can be substantial. In some cases, drivers with low credit scores may pay 50 to 100 percent more for the same coverage than drivers with high scores.

Even a small credit dip, say, from “good” to “fair,” can trigger a premium increase at renewal time. Insurers typically break credit into categories such as:

• Excellent
• Good
• Fair
• Poor

Your rate is often tied to where you fall on this scale, although each company uses its own thresholds. The good news is that many insurers re-evaluate your credit score at renewal, which means you have the opportunity to lower your rate by improving your credit.

How to Improve Your Credit and Lower Your Premium

If your credit score is holding your insurance rate back, there are steps you can take to improve it. The changes you make may not reduce your premium overnight, but over time, they can lead to significant savings.

1. Pay Bills On Time

Your payment history is one of the most important factors in both your traditional and credit-based insurance score. Set up reminders or automatic payments to avoid late fees and missed due dates.

2. Reduce Credit Card Balances

High credit utilization, using a large percentage of your available credit, can negatively affect your score. Try to keep your balances below 30 percent of your credit limits, and pay down debt where possible.

3. Avoid Unnecessary Credit Applications

Opening multiple new accounts in a short period can lower your score temporarily. Apply for new credit only when necessary, and avoid multiple hard inquiries.

4. Check Your Credit Report for Errors

Mistakes on your credit report can hurt your score and your insurance pricing. You’re entitled to a free report from each major credit bureau once a year through AnnualCreditReport.com. Review your reports and dispute any inaccuracies.

5. Establish a Long-Term Credit History

If you’re relatively new to credit, try to maintain open accounts in good standing over time. The length of your credit history contributes positively to your score.

These steps benefit not only your insurance rates but also your broader financial life. A higher credit score can lead to better loan terms, lower interest rates, and easier approvals in general.

What to Do If You Think Your Credit Is Hurting Your Rate

If you suspect your premium is high because of your credit score, don’t hesitate to take action. Here are a few ways to address it:

• Ask your insurer if your credit was used to determine your rate. They are required to tell you if a credit-based factor contributed to a higher price.
• Request a re-evaluation after you’ve made credit improvements. Many insurers will rerun your score at renewal, but you can also ask them to review it earlier.
• Compare quotes from other insurers. Different companies weigh credit differently. One insurer may offer much lower rates to someone with average credit than another.

You should also explore companies that advertise more flexible underwriting or focus less on credit history. Some regional insurers, usage-based programs, or telematics options put more weight on how you drive rather than how you manage your credit.

Conclusion

Your credit score is just one piece of the puzzle when it comes to car insurance, but it’s a piece that can quietly cost you more if you’re not paying attention. In most states, insurers use your credit profile to help set your rates, even if your driving record is spotless. That’s why understanding the connection, and knowing how to improve it, can be a powerful way to take back control.

If you haven’t checked your credit recently or asked your insurer how it factors into your rate, now’s a great time to start. The steps you take today, like lowering debt or fixing errors, can lead to real savings down the road. Combine that with smart shopping and good driving habits, and you’re on the path to a better price and stronger financial footing. Your credit can change, and so can your rate.