How Your Credit Score Affects Insurance Rates (And How to Save Money)
Your credit score doesn’t just impact loans and credit cards—it can also significantly influence your insurance premiums. Here’s how it works and what you can do to minimize costs.
1. Why Do Insurers Check Credit Scores?
Insurance companies use credit-based insurance scores (different from FICO scores) to predict risk. Studies show that people with lower credit scores tend to file more claims. As a result, insurers may charge higher premiums to offset that risk.
Which Types of Insurance Are Affected?
Auto Insurance – Biggest impact in most states.
Homeowners/Renters Insurance – Often influenced by credit.
Health Insurance – Not affected (under ACA rules).
Life Insurance – Usually depends on health, not credit.
(Note: California, Hawaii, and Massachusetts ban or restrict credit-based auto/home insurance pricing.)
2. How Much Can a Bad Credit Score Cost You?
Poor credit (500-600) → Could double your premiums vs. excellent credit.
Average credit (601-720) → Moderate rates, but not the best.
Excellent credit (720+) → Lowest possible premiums.
Example: Auto Insurance Costs by Credit Tier
Credit Tier Average Annual Premium
Poor (500-600) $2,500+
Fair (601-720) $1,500
Excellent (720+) $1,200
(Source: Insurance industry data; varies by insurer and state.)
3. How to Improve Your Credit for Better Rates
Quick Fixes (Short-Term)
Check for errors – Dispute mistakes on your credit report (via AnnualCreditReport.com).
Lower credit utilization – Keep balances below 30% of your limit.
Avoid new credit applications – Hard inquiries can temporarily lower your score.
Long-Term Strategies
Pay bills on time – Payment history is 35% of your score.
Keep old accounts open – Longer credit history helps.
Set up autopay – Prevents missed payments.
4. What If Your Credit Is Bad? Ways to Save
Shop around – Some insurers weigh credit less heavily (e.g., GEICO, State Farm).
Ask for exceptions – Some companies offer “no-credit-check” policies (but may cost more).
Bundle policies – Multi-policy discounts can offset high rates.
Take a defensive driving course – May lower auto premiums.
5. States Where Credit Doesn’t Affect Insurance
California
Hawaii
Massachusetts
Michigan (partial restrictions)
(If you live in these states, insurers can’t use credit to set rates.)
Key Takeaways
Credit impacts auto & home insurance (not health/life).
Poor credit can double your premiums.
Improving your score by 50+ points can save hundreds per year.
Check your state’s laws—some ban credit-based pricing.
Need help finding the best insurer for your credit situation? Let me know your state and rough credit range, and I can suggest companies with favorable pricing!