Credit Scores and Auto Insurance Rates: What Drivers Should Know

If you’re looking for affordable insurance, great credit can help. Insurance providers look at as much information as they can when setting prices. Their goal is to make sure that most policies are profitable. Driver statistics allow them to set premiums more effectively, and credit scores are part of that math.

Your credit score is a three-digit number based on your credit report. A higher number typically means lower interest rates when you take out a loan. Credit scores are commonly called FICO Scores because they’re issued by the Fair Isaac Corporation, which creates the most commonly used credit scoring system in the United States.

Scores under 580 are considered “poor.” Other score ranges:

580-669 - Fair
670 - 739 - Good
740-799 - Very Good
800+ - Exceptional

So, why does your credit affect your auto insurance? Insurers don’t look at credit scores to determine whether or not you’ll pay your premiums — they’re trying to determine whether you’ll submit a claim.

In 2007, the Federal Trade Commission published a study showing that credit scores are “effective predictors of risk.” In other words, people with higher FICO scores are less likely to report an insurance claim.

That’s not necessarily true for every driver, of course. However, as we mentioned earlier, car insurance companies use as many predictors as possible when setting rates, and that often includes credit history.

Does every car insurance company use credit scores when setting premiums?

Several states prevent insurance companies from using credit scores to set premiums: California, Massachusetts, and Hawaii. Other states restrict the ways that insurers can use that info. However, if you’re not in one of those three states, your credit score will probably affect your auto insurance rate.

But it doesn’t matter as much as your driving history. If you’ve racked up a few accidents and traffic tickets, a great credit score won’t get you rock-bottom premiums — and if you’re a safe driver with poor credit, you’ll still be able to find decent rates.

In addition to credit scores and driver history, insurers look at dozens of other factors. That typically includes age, gender, driving habits, address, and vehicle make & model. Some insurance companies give more weight to certain criteria, and they use different methods when setting their prices.

Finding Affordable Auto Insurance with Bad Credit or No Credit

So, how can drivers with poor credit keep their insurance premiums as low as possible? One tactic is to take steps to improve your credit score before shopping for insurance.

Potential ways to boost your FICO score:

Avoid taking out loans (including car loans) in the weeks before shopping for insurance
Pay down credit cards and other debts
Pay your bills on time
File a dispute for any inaccurate bad marks on your credit history
Avoid closing unused credit cards

Of course, you might not have much control over your FICO score, especially if you’ve filed for bankruptcy or you haven’t established much of a credit history. The good news: While your credit can affect your rates, you can still find ways to cut your costs.

Comparing insurance premiums can help you lock in low premiums without sacrificing your coverage. Don’t take our word for it — most state governments publish consumer guides to auto insurance that advise drivers to compare policies carefully. Checking prices will help you find excellent coverage without overspending.

Even if you have poor credit, you can cut your premiums considerably with the right approach. Insuraroo makes auto insurance comparisons easier. We’re committed to data security, and our tools let you compare policies quickly, accurately, and safely. By checking your rates here, you’ll be able to find the affordable financial protection you need to drive with peace of mind.