Did you know your credit score can impact how much you pay for insurance? Many insurers use a special credit-based insurance score to help determine your premiums for auto, home, and even renters insurance. If you have a low credit score, you could be paying hundreds more per year than someone with good credit. Learn how your credit affects your insurance rates and what you can do to lower your costs.
Why Do Insurance Companies Check Your Credit?
Insurance companies use credit-based scores because research shows that people with lower credit scores are more likely to file claims. While it may seem unfair, insurers see a correlation between financial habits and risk-taking behavior.
Unlike the credit score lenders use, which predicts how likely you are to repay a loan, an insurance credit score predicts how likely you are to file an insurance claim.
How Your Credit Score Impacts Different Types of Insurance
📌 Auto Insurance: A lower credit score can mean significantly higher premiums. In some states, drivers with poor credit pay 50%–100% more than those with excellent credit.
📌 Homeowners Insurance: Insurers may see lower credit scores as a sign of poor financial responsibility, which could mean higher home insurance costs.
📌 Renters Insurance: While renters insurance is generally affordable, having bad credit could increase your rate.
📌 Life Insurance: Credit history isn’t always factored in, but some insurers may use it when determining your risk level.
States That Restrict Credit-Based Insurance Scores
Some states have banned or restricted the use of credit scores in insurance pricing. As of now, the following states prohibit credit-based insurance scoring for auto insurance:
🚫 California
🚫 Hawaii
🚫 Massachusetts
🚫 Michigan
Other states have limits on how much credit can affect home and renters insurance rates, so check your state’s laws if you think your credit score is unfairly impacting your premiums.
How to Check If Your Credit Score Is Raising Your Insurance Costs
Many insurance companies won’t tell you directly that your credit score is affecting your rate. However, you can:
✔ Request your credit-based insurance score from your insurer.
✔ Compare quotes from multiple insurers to see if credit is affecting your rate.
✔ Check your credit report for errors that could be unfairly raising your premiums.
Ways to Improve Your Credit and Lower Your Insurance Rates
✔ 1. Pay Bills on Time – Late payments lower your credit score, so set up automatic payments to stay on track.
✔ 2. Reduce Credit Card Balances – High credit utilization (using more than 30% of your available credit) can hurt your score.
✔ 3. Avoid Opening Too Many Accounts at Once – Applying for multiple loans or credit cards in a short time can negatively impact your credit.
✔ 4. Dispute Credit Report Errors – Check your credit report for mistakes and dispute any inaccuracies with the credit bureaus.
✔ 5. Ask for a Policy Review – If your credit score has improved, ask your insurer to re-evaluate your rate.
Should Credit Scores Be Used for Insurance Pricing?
There’s ongoing debate about whether credit scores should impact insurance rates. Critics argue it discriminates against lower-income individuals, while insurers claim it’s an accurate predictor of risk.
Regardless of the controversy, your credit does affect your premiums in most states—so improving your score can be one of the best ways to lower your insurance costs.
Final Thoughts: Take Control of Your Credit and Your Rates
Your credit score doesn’t just impact your ability to get loans—it can also significantly affect your insurance premiums. If you want to lower your costs, improving your credit score is one of the best long-term strategies. Check your credit regularly, dispute errors, and maintain good financial habits to keep your insurance rates as low as possible.