Here's what bad credit can mean for car insurance rates

A bad credit history won’t just boost the cost of your car loan. It will probably jack up your car insurance premiums.

More than 90% of insurance companies consider credit history as one of the factors when setting car and home insurance rates.

Almost all states let insurers do this—except for California, Hawaii and Massachusetts, which ban the practice.

Insurers say loads of data show a connection between credit history and the filing of claims. People who pay their bills on time on average file fewer and less costly claims than those with a lot of late payments or delinquencies.

Insurance companies don’t consider the same credit score that lenders do. They look at a score designed specifically for them. The credit score used by lenders predicts your ability to repay a loan. An credit-based insurance score predicts whether you’ll file claims.

How much does bad credit increase your car insurance rates?

In states where a credit-based insurance score is allowed to influence rates, the impact of bad credit can be severe. commissioned Quadrant Information Services to compare full-coverage rates for drivers with average or better credit, fair credit and poor credit.

Nationwide, the average difference in rates between good credit and fair was 17%. The difference between good credit and poor credit was 67%.

In addition, your credit may affect the size of the down payment an insurance company requires and which payment options you are offered.

Your consumer credit score touches many aspects of your finances: car loans, credit cards, mortgages and even employment.

“The better your credit, the more money you’ll save, so knowing your credit score and monitoring your credit history can enable you to make smarter financial choices and to get the most of your money,” says Loryll Nicolaisen, managing editor of, a site that offers consumer credit advice and free credit scores and credit reports.


What helps and hurts your auto insurance score

Insurance companies say the most important factors for a good credit-based insurance score are a long credit history, minimal late payments or past-due accounts, and open credit accounts in good standing.

Typical negatives include past-due payments, collections, a high debt level, a high number of credit inquiries and a short credit history.

Your income, age, ethnicity, address, gender and marital status are not considered as part of the score.

The use of credit for setting premiums is controversial. Some consumer advocates say it unfairly penalizes people with low incomes or those who have job losses—the people who need cheap car insurance the most.

But insurers say when combined with other rating factors, the use of credit-based insurance scores helps them set accurate rates.

How to improve your car insurance score

Here’s what you can do to improve your credit-based insurance score and get lower premiums as a result:

  • Pay your bills on time, and keep all your accounts in good standing. Late payments and collections will hurt you.
  • Keep your credit card balances low. The insurance score considers the amount you owe in relation to your credit limits. Avoid maxing out your credit cards.
  • Don’t open unnecessary credit accounts. Too many new accounts signals trouble. Only open the credit accounts you really need.
  • Establish and maintain credit. The longer you maintain a decent credit history, the better. Having no or little credit history will lower your score.
  • Make sure your credit report is accurate. A mistake could ding your score. You can request free copies of your credit reports from the three national credit reporting agencies through Follow directions from the agencies to fix any errors.

If you’re struggling to pay bills and have trouble keeping up with credit accounts, get professional finance advice. You can find free or low-cost help through the nonprofit National Foundation for Credit Counseling.

As your credit scores improve, your car insurance rates are likely to decline. You should consider comparing car insurance quotes at renewal time if you have seen a positive trend in your scores.


Mar 26, 2015 | By


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