Did you know that your credit score can directly affect your auto insurance premium? In the US, insurance companies use your credit score and insurance score to determine your rates.
In this blog, we’ll tell you what an insurance score is, how credit affects insurance rates, and how much bad credit may increase rates in your state. Plus, find out whether insurance companies check your credit and whether getting auto insurance quotes impacts your credit score.
Understanding Credit and Insurance Scores
Credit and insurance scores are important factors affecting your auto insurance rates. Credit scores measure your financial responsibility, while insurance scores are used by insurance companies to measure your risk level. Both of these scores are used to determine insurance premiums.
For example, a high credit score indicates that you make payments on time and are a low-risk customer, which may get you lower rates. At the same time, customers with poor credit scores are considered higher risk and have to pay higher premiums.
In this section, we will understand in detail the impact of insurance score and credit on auto insurance rates.
What is an Insurance Score?
The Insurance Score is a special score that insurance companies use to assess your risk. This score is prepared based on your credit history and financial habits. Although it is different from your credit score, the two have many similarities.
The main purpose of the insurance score is to estimate whether you will pay the insurance policy premium on time or not and how loyal a customer you are.
Key components of the Insurance Score:
- Payment History: Do you pay your bills on time?
- Total Outstanding Debts: How many liabilities do you currently have?
- Length of Credit History: How old are your credit accounts?
- New Credit Inquiries: How many times have you applied for new credit recently?
Insurance companies decide on the basis of these data whether to give you discounted premium rates or charge a higher premium. A good insurance score can get you lower rates.
How Does Credit Affect Insurance Rates?
Your credit score significantly impacts auto insurance rates. Insurance companies consider this an indicator of your financial behavior. Customers with high credit scores typically receive lower premium rates, while those with poor credit scores may face higher rates.
Here are some important points that show how credit affects your insurance rates:
- Risk Assessment: Insurance companies believe that people who have good credit scores are more responsible and considered low-risk customers.
- Reduction in Administrative Costs: Customers with higher credit scores are more likely to receive payments on time, reducing costs for insurance companies.
- State-Specific Impacts: In some US states, such as California, Hawaii, and Massachusetts, insurance companies are not allowed to use credit scores.
Credit Score Tiers by FICO Scores
| Tier | FICO Score Range |
|---|---|
| Excellent | 800-850 |
| Very Good | 740-799 |
| Good | 670-739 |
| Fair | 580-669 |
| Poor | 300-579 |
Tips to improve credit score:
- Pay bills on time.
- Keep credit card balance low.
- Avoid unnecessary new credit enquiries.
The Relationship Between Credit Score and Auto Insurance Rates
Your credit score directly affects your auto insurance premium. Insurance companies use it to measure your financial responsibility and risk level. Customers with higher credit scores are considered lower risk, which leads to lower premium rates.
Conversely, insurance companies may consider customers with poor credit scores a higher risk and raise their rates.
Some states in the US, such as California, Hawaii, and Massachusetts, do not allow credit scores to be used in deciding insurance rates. But in the rest of the states, your credit score plays a significant role in your insurance cost. By improving this you can get better premium rates.
How Much Does Your Credit Rating Affect Insurance Rates?
Credit score has a significant impact on insurance rates. Customers who have good credit scores are given lower premium rates because they are considered less risky.
In contrast, customers with poor credit scores face higher premiums because insurance companies consider them a higher risk customer. The table below shows how much different insurance companies increase premium rates due to bad credit.
| Company | Good Credit ($) | Increase with Poor Credit ($) |
|---|---|---|
| USAA* | $100 | $82 |
| Erie | $106 | $140 |
| Geico | $161 | $97 |
| Nationwide | $185 | $177 |
| American Family | $160 | $104 |
| Farm Bureau | $161 | $116 |
| Progressive | $169 | $120 |
| Travelers | $160 | $132 |
| Average | $164 | $144 |
Note: USAA* is only available to military members, veterans and their family.
Key Findings:
- Increased costs: A bad credit score sees an average increase of up to $144, which can significantly increase your insurance costs.
- Highest increase: Nationwide raises the most for bad credit to $177, while Erie raises it to $140.
- Affordable Options: USAA and Geico have relatively low increases on bad credit, making them better choices.
Bad Credit Car Insurance Rates in Your State
Customers with poor credit scores face higher premiums from insurance companies. This increase is decided by the insurance companies based on the risk assessment of the customer.
Bad credit is seen as a higher risk because insurance companies believe that such customers may default on timely payments or make higher claims. This increase varies by state and insurance provider.
| Company | Monthly Rate ($) | % Increase | Editor’s Rating |
|---|---|---|---|
| Geico | $257 | 159% | 3.0 |
| Nationwide | $262 | 139% | 4.0 |
| Progressive | $288 | 169% | 3.0 |
| Allstate | $349 | 160% | 3.0 |
| State Farm | $467 | 372% | 4.5 |
Key Findings:
- Highest Increase: State Farm makes the largest premium increase for bad credit, with a monthly rate of $467, representing a 372% increase.
- Lowest Increase: Nationwide offers a comparatively low increase (139%), making it a more affordable option for customers with bad credit.
- Other Options: Providers like Geico and Progressive also offer comparatively low monthly rates.
Monthly Full Coverage Rates by State
Your credit score has a direct impact on your auto insurance rates in the US. Insurance companies offer lower premiums to customers with good credit, while customers with bad credit have to pay more. This difference may vary in different states.
For example, Washington, D.C. In the U.S., customers with bad credit pay 166% more, while in Washington the difference is only 23%. Some states, such as California, Hawaii, and Michigan, do not use credit scores to determine rates. The table below explains this difference in detail.
| State | Good Credit ($) | Poor Credit ($) | Difference (%) |
|---|---|---|---|
| Alabama | $165 | $291 | 76% |
| Alaska | $136 | $239 | 76% |
| Arizona | $224 | $409 | 83% |
| Arkansas | $157 | $292 | 86% |
| California | $156 | $156 | n/a |
| Colorado | $212 | $405 | 91% |
| Connecticut | $196 | $388 | 98% |
| Delaware | $207 | $352 | 70% |
| Florida | $249 | $512 | 106% |
| Georgia | $153 | $299 | 95% |
| Hawaii | $137 | $137 | n/a |
| Idaho | $102 | $172 | 69% |
| Illinois | $176 | $328 | 86% |
| Indiana | $126 | $258 | 105% |
| Iowa | $139 | $260 | 87% |
| Kansas | $166 | $321 | 93% |
| Kentucky | $191 | $417 | 118% |
| Louisiana | $227 | $430 | 89% |
| Maine | $92 | $191 | 108% |
| Maryland | $171 | $314 | 84% |
| Massachusetts | $172 | $172 | n/a |
| Michigan | $386 | $386 | n/a |
| Minnesota | $157 | $390 | 148% |
| Mississippi | $150 | $277 | 85% |
| Missouri | $159 | $305 | 92% |
| Montana | $181 | $309 | 71% |
| Nebraska | $159 | $298 | 87% |
| Nevada | $247 | $433 | 75% |
| New Hampshire | $96 | $187 | 95% |
| New Jersey | $168 | $412 | 145% |
| New Mexico | $163 | $281 | 72% |
| New York | $169 | $418 | 147% |
| North Carolina | $109 | $205 | 88% |
| North Dakota | $155 | $300 | 94% |
| Ohio | $111 | $201 | 81% |
| Oklahoma | $177 | $307 | 73% |
| Oregon | $176 | $335 | 90% |
| Pennsylvania | $155 | $304 | 96% |
| Rhode Island | $220 | $398 | 81% |
| South Carolina | $151 | $299 | 98% |
| South Dakota | $168 | $322 | 92% |
| Tennessee | $129 | $251 | 95% |
| Texas | $153 | $351 | 129% |
| Utah | $188 | $351 | 87% |
| Vermont | $103 | $175 | 70% |
| Virginia | $133 | $234 | 76% |
| Washington | $128 | $158 | 23% |
| Washington, D.C. | $174 | $463 | 166% |
| West Virginia | $142 | $259 | 82% |
| Wisconsin | $128 | $203 | 59% |
| Wyoming | $120 | $193 | 61% |
Key Findings:
- Largest Difference: Washington, D.C. Customers with bad credit pay 166% more in the U.S.
- Lowest Difference: In Washington this difference is only 23%.
- State-Specific Policies: Credit score does not affect insurance rates in California, Hawaii and Michigan.
Credit Checks and Their Impact
Insurance companies use your credit history to decide whether you will make payments on time and how risky a customer you are. However, they perform credit checks through “soft inquiries,” which do not have any negative impact on your credit score.
This check helps in setting insurance rates and ensures that customers are paid premiums as per their financial situation.
Additionally, getting a car insurance quote does not affect your credit score as it also comes under soft enquiry. So you can compare insurance rates without any worries.
Do Insurance Companies Check Your Credit?
Yes, most insurance companies check your credit score, but this check is done through a “soft inquiry” that does not negatively impact your credit score. Insurance companies use your credit history to understand whether you are a responsible customer who pays premiums on time.
However, some US states, such as California, Hawaii, Massachusetts, and Michigan, do not allow insurance companies to set premiums using credit scores. In these states, insurance rates are determined by other factors, such as driving record and vehicle type.
So, if you live in these states, your credit score will not affect your insurance rates.
Does Getting a Car Insurance Quote Affect Your Credit Score?
No, getting car insurance quotes does not have any negative impact on your credit score. When insurance companies check your credit, it is a “soft inquiry” that does not affect your credit report. Soft inquiries are only used to look at your financial information so insurance companies can set your premium rates.
Key Points:
- Soft vs. Hard Inquiries: Soft inquiries, such as insurance quotes, do not affect credit scores. Hard inquiries, such as loan or credit card applications, can lower a credit score.
- It’s Safe to Get Multiple Quotes: You can get quotes from more than one insurance company, and it won’t affect your score.
- Compare With Peace: Compare rates from different insurance companies and choose the most suitable option.
Conclusion
Your credit score is an important factor affecting auto insurance rates. Insurance companies offer lower premium rates to customers with good credit scores, while customers with bad credit scores have to pay more.
Additionally, insurance companies conduct credit checks through “soft inquiries,” which do not have any negative impact on your credit score.
Improving your credit score not only improves your financial health but also helps you get cheaper insurance rates. Have you noticed the impact of your credit score on your insurance rates?