The Credit-Insurance Connection
If you have poor credit, here's a frustrating fact: you're probably paying 76% more for car insurance than someone with excellent credit — even if you have the exact same driving record, vehicle, and coverage.
In most states, your credit-based insurance score is one of the top three factors insurers use to determine your premium. It can have a bigger impact than a speeding ticket or minor accident.
But here's what most drivers don't understand: insurers aren't using your FICO score. They're using a different score based on your credit history — and it's weighted very differently. Let's break down exactly how it works and what you can do about it.
What Is a Credit-Based Insurance Score?
A credit-based insurance score is a numerical score (typically 200–900+) that predicts how likely you are to file an insurance claim. It's calculated using information from your credit report, but it's not the same as your FICO credit score.
The two most common insurance scoring models are LexisNexis Attract and FICO Auto Insurance Score. Both analyze factors like:
- Payment history (35–40% of score)
- Outstanding debt and credit utilization (20–30%)
- Length of credit history (15%)
- New credit inquiries and recent accounts (10%)
- Mix of credit types (10%)
Key difference: Insurance scores focus more on payment consistency and stability than your total debt amount. Someone with $50K in debt but perfect payment history may score better than someone with $5K in debt and missed payments.
Why Do Insurers Use Credit Scores?
Insurers have found a statistical correlation between credit history and claims frequency. Decades of data show that drivers with lower credit-based insurance scores file more claims and cost insurers more money.
Importantly, this is a correlation, not causation. Insurers aren't saying poor credit makes you a bad driver — they're saying it makes you statistically more likely to file a claim.
Critics argue this is unfair because credit problems are often caused by life circumstances (medical debt, job loss, divorce) unrelated to driving ability. That's why several states have banned or restricted the practice.
How Much Does Credit Affect Your Rate?
The impact is massive. Here's how premiums vary by credit tier (national averages for identical coverage):
Excellent credit (800+): $1,400/year
Good credit (700–799): $1,700/year (+21%)
Fair credit (600–699): $2,200/year (+57%)
Poor credit (<600): $2,464/year (+76%)
That means a driver with poor credit pays $1,064 more per year than a driver with excellent credit — over $88 per month — for the exact same coverage.
Real-world impact: If you improve your credit from poor to fair, you could save $264/year. From fair to good? Another $500/year in savings.
States That Ban Credit-Based Pricing
Four states have banned or severely restricted the use of credit in auto insurance pricing:
- California: Complete ban. Credit cannot be used as a rating factor.
- Hawaii: Complete ban. Credit cannot be used.
- Massachusetts: Complete ban. Credit cannot be used.
- Michigan: Restricted use. Insurers can only use credit in limited ways.
If you live in one of these states, your premium is based on factors like driving record, mileage, vehicle, and location — but not credit.
In all other states, insurers are allowed to use credit-based insurance scores, though the weight given to credit varies by carrier.
How to Check Your Insurance Credit Score
Unlike your FICO score, you can't easily check your insurance credit score online. However, you can:
1. Request your LexisNexis report. Go to consumer.risk.lexisnexis.com and request your free LexisNexis Attract Report. It may include your insurance score.
2. Check your regular credit reports. Get free reports from Equifax, Experian, and TransUnion at AnnualCreditReport.com. While these won't show your insurance score, they reveal the underlying data insurers use.
3. Ask your insurer. Some insurers will tell you if credit was a factor in your rate. If your premium is high, ask whether a better credit score would lower it.
How to Improve Your Insurance Credit Score
Improving your credit-based insurance score is similar to improving your regular credit score — but it takes time. Here's what works:
1. Pay all bills on time. Payment history is the single biggest factor. Even one missed payment can hurt your score for years.
2. Reduce credit card balances. Keep your credit utilization (balance ÷ limit) below 30%. Below 10% is ideal.
3. Don't close old accounts. Length of credit history matters. Keep old cards open, even if you don't use them often.
4. Limit new credit inquiries. Applying for too much credit in a short time can lower your score. Space out applications.
5. Check for errors. About 20% of credit reports contain errors. Dispute any inaccuracies with the credit bureaus.
6. Pay off collections and charge-offs. These have a major negative impact. Even if you can't pay in full, negotiate a settlement.
How fast will it help? Small fixes (errors, paying off collections) can show results in 30–60 days. Larger improvements (building payment history, reducing debt) take 3–6 months or longer.
How to Get Cheaper Insurance With Bad Credit
If you have poor credit, you will pay more for car insurance in most states. But you can still minimize the damage:
1. Shop around aggressively. Every insurer weighs credit differently. One carrier might charge you $2,800/year while another offers the same coverage for $2,200. That $600 difference is worth the 30 minutes it takes to compare quotes.
2. Look for carriers that weigh credit less. Some insurers (like USAA, Erie, and regional carriers) rely more on driving record and less on credit. Ask agents which companies are most forgiving of credit issues.
3. Maximize other discounts. Stack as many discounts as possible: bundling (10–30% off), safe driver (5–30%), low mileage, telematics, good student, homeowner, and more.
4. Raise your deductibles. Moving from a $500 to $1,000 deductible can save 10–20% on collision and comprehensive premiums.
5. Consider a pay-per-mile or usage-based policy. If you don't drive much, programs like Metromile or telematics-based policies can significantly reduce your premium.
What If You Have No Credit History?
If you're new to credit (no credit cards, loans, or payment history), insurers may treat you similarly to someone with poor credit — because they have no data to assess your risk.
To build credit and improve your insurance score:
- Open a secured credit card and use it responsibly
- Become an authorized user on a parent or spouse's credit card
- Take out a small credit-builder loan
- Make sure rent and utility payments are reported (some services do this)
Within 6–12 months of responsible credit use, you'll have enough history to qualify for better insurance rates.
Does Getting Insurance Quotes Hurt Your Credit?
No. When you request car insurance quotes, insurers perform a soft pull of your credit. Soft pulls do not affect your credit score.
You can request as many quotes as you'd like without any impact on your credit. This is true whether you're comparing quotes online, through an agent, or by calling carriers directly.
Pro tip: Always compare quotes from at least 3–5 carriers. Since each weighs credit differently, you'll see significant variation in rates.
Frequently Asked Questions
Yes, in most states. Insurers use a credit-based insurance score (not your FICO score) to help predict the likelihood you'll file a claim. This score is based on your credit history but weighted differently than traditional credit scores.
Yes, you can always get car insurance regardless of your credit score. However, drivers with poor credit typically pay 76% more on average than those with excellent credit for the same coverage.
California, Hawaii, Massachusetts, and Michigan have banned or restricted the use of credit scores in auto insurance pricing. In these states, insurers must use other factors to determine rates.
No. Insurance quote inquiries are soft pulls that do not affect your credit score. You can request as many quotes as you'd like without any impact.
Small improvements can show up in 30–60 days (paying off a collections account, correcting errors). Larger improvements take 3–6 months or longer (building payment history, reducing utilization).