Why Do Insurance Companies Care About Your Credit?
Studies show that people with lower credit scores tend to file more claims. Insurers argue that using a credit-based insurance score helps them price policies more fairly based on risk.
What Factors Go Into Your Insurance Score?
Not all credit data is treated equally. Insurance companies tend to focus on:
- Outstanding debt
- Payment history
- Account age
- New credit activity
- Number of open accounts
How Big Is the Impact?
According to industry reports, a driver with poor credit could pay up to double what a similar driver with excellent credit would pay for the same coverage.
Where Your Credit Score Doesn’t Matter
A few states prohibit or limit the use of credit in setting car insurance rates. As of 2025, these include:
- California
- Massachusetts
- Michigan (partial restrictions)
- Hawaii
Can You Avoid the Penalty?
Yes, but it takes time. Try these steps:
- Dispute errors on your credit report
- Avoid late payments at all costs
- Use less than 30% of your credit limit
- Consider a credit-building loan if needed
Conclusion
Your credit score is more than just a number—it could be the key to lower car insurance premiums. By improving your financial habits and monitoring your credit regularly, you may unlock better rates and long-term savings on your policy.