In many states, your credit history can influence what you pay for car insurance. It doesn't work the same way as a loan application, though, and the rules depend heavily on where you live and which insurer you use.
Laws on credit-based insurance scores differ by state and change over time. Check your state insurance department's website for the rules that apply to you.
What a credit-based insurance score is
Many insurers use a credit-based insurance score, which is built from information in your credit report. It's related to, but not the same as, the credit score a lender uses. A lending score is designed to predict whether you'll repay a loan; an insurance score is designed to predict the likelihood of insurance losses.
Insurance scores are generally based on factors such as:
- Your history of paying bills on time
- How much debt you carry compared with your available credit
- How long you've had credit
- How often you've applied for new credit recently
- The mix of credit accounts you have
Scoring companies and insurers say these scores don't use details such as your income, race, religion, gender or marital status, though rules on what's permitted are set by each state.
Where it's allowed
Most states allow insurers to use credit-based insurance scores for auto insurance, within limits. A few states, including California, Hawaii and Massachusetts, prohibit or significantly restrict it. Others limit how it can be used, for example by not allowing credit to be the only reason an insurer refuses, cancels or doesn't renew a policy.
Even where it's allowed, insurers decide whether and how much to use it, so its effect on your price can vary widely from one company to another.
Does checking it hurt your credit?
No. When an insurer checks your credit for a quote, it's typically a "soft" inquiry, which doesn't affect your credit score. You can usually get quotes from several insurers without any impact on your credit.
Your rights
- Adverse action notices. Under federal law, if an insurer charges you more or denies coverage based on information in your credit report, it generally must tell you and identify the credit reporting company it used.
- Free credit reports. You can get free copies of your credit reports from the three nationwide credit bureaus at AnnualCreditReport.com, and dispute any errors you find.
- Life events. Some states require insurers to consider exceptions if your credit was affected by serious events such as a major illness, job loss, divorce or the death of a family member. Ask your insurer whether this applies.
What you can do
- Check your reports for errors. Mistakes on a credit report can affect your insurance score. Disputing inaccurate information is free.
- Build good habits over time. Paying bills on time and keeping credit card balances low relative to your limits generally support both lending and insurance scores.
- Shop around. Because insurers weigh credit differently, or not at all in some states, comparing quotes can make a noticeable difference if your credit isn't where you'd like it to be.
- Ask about re-rating. If your credit has improved, ask your insurer whether it will review your insurance score at renewal.
For the full picture of what goes into your price, see How Are Car Insurance Rates Calculated?
Frequently asked questions
Is my credit-based insurance score the same as my FICO score?
No. Both draw on your credit report, but they're designed to predict different things and are calculated differently. A good lending score often goes along with a good insurance score, but not always.
Will getting car insurance quotes lower my credit score?
Typically not. Insurance quotes usually involve a soft credit inquiry, which doesn't affect your credit score.
How do I know if credit affected my rate?
If an insurer charges you more or denies coverage based on your credit report, it generally must notify you. You can also ask the insurer directly whether credit was used in pricing your policy.
