How Credit Affects Auto Insurance: A Study
 Written & Edited by Fran Majidi Fran MajidiFran Majidi manages content on SmartFinancial's website. She's had nearly a decade's worth of experience writing about i... Read more |
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Unless you live in California, Hawaii, Maryland, Massachusetts or Michigan, insurance companies use your credit score to determine your rate. If you have a low credit score, you will undoubtedly pay more for insurance. Why? Insurance companies see a direct correlation between low credit scores and the likelihood of that driver filing an insurance claim in the future. Here’s more on how your credit score affects your premium and how to get the best deal if your credit score is low.
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Key Takeaways
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How Much Does My Credit Affect My Insurance Rate?
A low credit score can raise your monthly premium by more than 70%. How much you save exactly depends on your insurance company and where you live (see the chart below). There are no set parameters for how to rate credit scores so it’s worth it to compare rates if your credit score is less than perfect.
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What’s a Credit Score and How Is it Determined?
Your credit score is the same thing as your FICO score and is usually between 300 and 850 points. It is a predictor of whether or not you will pay your bills or loan. You will need good credit to buy or lease a car, to rent or buy a home and more.
The points on your credit score are determined based on:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- How many types of credit in use: 10%
- Account inquiries: 10%
Many will give you the information at no cost. Or you can contact the major credit bureaus on your own: Equifax®, Experian®, and TransUnion®. You are legally allowed one free credit report every 12 months.
| Credit Tier | Fico Score |
|---|---|
| Excellent | 800-850 |
| Very Good | 740-799 |
| Good | 670-739 |
| Fair | 580-669 |
| Poor | 300-579 |
Insurers use your FICO score to calculate an insurance score, which takes several factors into account, like your driving history, location and age, even gender in some states.
Every insurer’s formula in deriving an insurance score is different. That’s why it’s important to comparison-shop when buying any type of insurance.
Your credit measures risk by showing an insurer how timely you are in paying bills and whether or not you repay your loans.
The Good and the Bad: Low and High Credit Score’s Impact on Premiums in Each State
| State | Average Premium With the Lowest Tier Credit Score | Average Premium With the Highest Tier Credit Score |
|---|---|---|
| Alabama | $179.87 | $120.81 |
| Alaska | $194.45 | $175.01 |
| Arizona | $177.09 | $104.46 |
| Arkansas | $171.04 | $124.83 |
| California | $222.70 | $178.77 |
| Colorado | $197.25 | $133.06 |
| Connecticut | $237.08 | $172.30 |
| Delaware | $229.66 | $129.28 |
| D.C | $374.58 | $177.80 |
| Florida | $334.17 | $206.25 |
| Georgia | $207.56 | $145.75 |
| Hawaii | $148.91 | $135.88 |
| Idaho | $122.74 | $72.59 |
| Illinois | $158.38 | $89.93 |
| Indiana | $116.47 | $82.27 |
| Iowa | $135.74 | $94.20 |
| Kansas | $177.57 | $125.80 |
| Kentucky | $193.35 | $129.12 |
| Louisiana | $342.32 | $231.61 |
| Maine | $136.13 | $78.59 |
| Maryland | $269.31 | $141.94 |
| Massachusetts | $188.95 | $117.29 |
| Michigan | $194.84 | $116.50 |
| Minnesota | $182.55 | $103.13 |
| Mississippi | $197.77 | $120.87 |
| Missouri | $169.67 | $121.50 |
| Montana | $169.82 | $129.37 |
| Nebraska | $159.42 | $109.20 |
| Nevada | $205.61 | $164.40 |
| New Hampshire | $141.64 | $98.86 |
| New Jersey | $301.45 | $150.50 |
| New Mexico | $182.24 | $112.25 |
| New York | $720.03 | $165.91 |
| North Carolina | $125.64 | $103.94 |
| North Dakota | $159.06 | $96.78 |
| Ohio | $127.81 | $82.23 |
| Oklahoma | $183.90 | $131.51 |
| Oregon | $156.98 | $108.77 |
| Pennsylvania | $165.90 | $132.03 |
| Rhode Island | $245.53 | $155.31 |
| South Carolina | $197.68 | $108.31 |
| South Dakota | $176.91 | $115.00 |
| Tennessee | $159.87 | $96.63 |
| Texas | $198.88 | $127.80 |
| Utah | $177.04 | $107.31 |
| Vermont | $167.45 | $90.86 |
| Virginia | $148.35 | $102.37 |
| Washington | $98.03 | $89, 32 |
| West Virginia | $178.43 | $119.04 |
| Wisconsin | $146.44 | $83.01 |
| Wyoming | $266.78 | $157.91 |
Rates were averaged from SmartFinancial’s internal quoting data over the past 365 days.
How To Improve Your Credit Score
- Catch up on past-due payments as soon as you can.
- Pay off existing accounts in collection.
- If you have a high amount of debt compared to the amount of credit available, pay it down.
- If you have a short credit history or none at all, open a credit card line and pay your bills on time.
- If you have a high number of credit inquiries, stop signing up for credit cards everywhere you shop! The discounts aren’t worth it!
After you’ve accomplished some or all of these steps, wait a couple of months and you’ll see that your credit score has risen!
What Else Do Insurers Look at Besides Credit Scores?
- Your driving record
- Where you live
- Your age
- Your gender
- Your marital status
- The type of vehicle you're insuring
- Your profession
- Your education level
- Whether or not you’re a homeowner
- Whether or not you’ve had lapses in insurance
Even if you have a low credit score, you can pay less on insurance. In fact, most people pay up to 40% more on insurance than if they shopped around for the best value. If you are interested in seeing how low a rate you can get, begin by entering your zip code on this page and answering a few questions.
- Insurance quotes /
- Auto /
- How Credit Affects Car Insurance
Fran Majidi manages content on SmartFinancial's website. She's had nearly a decade's worth of experience writing about insurance-related topics. Prior, she was an arts and entertainment editor in New York City. She has a B.A. from Barnard College and an M.F.A. in writing from The New School. She writes books under her given name, Afarin Majidi.
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