How Your Credit Score Affects Your Insurance Premiums
When most people think about credit scores, they usually associate them with loans, mortgages, or credit card applications. But did you know that your credit score can also affect how much you pay for insurance?
Whether it’s auto, home, or renters insurance, many companies use your credit information as part of their pricing formula. This practice may seem surprising, but it’s very common especially in the U.S.
In this post, we’ll explain why insurers use credit scores, how it influences your insurance premiums, and what you can do to protect or improve your rates.
What Is a Credit-Based Insurance Score?
A credit-based insurance score is a number derived from your credit report that insurance companies use to predict your likelihood of filing a claim. It’s not the same as your regular credit score, though they are closely related.
While your regular credit score (like a FICO score) predicts how likely you are to repay debt, your insurance score estimates how risky you are as an insurance customer.
Insurance companies believe there’s a correlation between your financial behavior and how likely you are to file claims. Right or wrong, that belief impacts how they price your policy.
📊 What Factors Affect Your Insurance Score?
Insurance scores are primarily based on information from your credit report. Common factors include:
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Payment history – Late or missed payments can hurt your score.
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Credit utilization – High credit card balances relative to your limits may raise red flags.
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Length of credit history – The longer your history, the better.
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Types of credit used – A healthy mix of credit types (credit cards, loans, etc.) is ideal.
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New credit inquiries – Too many recent applications can signal risk.
Note: Insurance scores do not consider your income, job status, race, gender, or marital status.
🚗 How Credit Score Affects Auto Insurance Premiums
In many states, insurers use your credit-based insurance score to set auto insurance premiums. A higher score usually means lower premiums, while a lower score can lead to higher rates—even if you’ve never had an accident.
Here’s how it can play out:
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A person with excellent credit may pay hundreds less per year than someone with poor credit, despite identical driving records.
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Some insurers may deny coverage or offer limited options to those with low scores.
🏡 How It Affects Home & Renters Insurance
The same principles apply to homeowners and renters insurance. Your credit score can influence:
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The base premium
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Eligibility for certain discounts
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The payment options you’re offered
In some cases, even if you’ve never filed a claim, a poor credit score might cause your home insurance rate to increase.
🌍 Is It Legal for Insurers to Use Your Credit Score?
In most U.S. states, yes—insurance companies are legally allowed to use your credit score to determine pricing.
However, a few states prohibit or limit this practice:
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California
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Hawaii
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Maryland
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Massachusetts
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Michigan (for some types of insurance)
If you live in one of these states, your credit won’t impact your premiums—or only in limited ways.
🛡️ How to Protect Yourself
If you’re concerned about your credit affecting your insurance premiums, here’s what you can do:
✅ 1. Check Your Credit Report Regularly
You’re entitled to a free credit report annually from all three bureaus (Equifax, TransUnion, Experian). Visit AnnualCreditReport.com to check for errors or fraud.
✅ 2. Improve Your Credit Score
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Pay bills on time
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Reduce credit card balances
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Avoid opening too many new accounts
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Keep older credit lines open to lengthen your history
Improving your credit score over time can help reduce your premiums on future renewals.
✅ 3. Shop Around
Different insurers weigh credit scores differently. If one company offers a high rate due to your credit, another may not. Get multiple quotes and compare.
✅ 4. Ask About Non-Credit-Based Pricing
If your score isn’t great, ask the insurer if they offer plans that don’t rely on credit. Some insurers now offer usage-based insurance or claim-based pricing.
🧾 Final Thoughts
While it may seem unfair that your credit score affects your insurance costs, it’s a reality in many places. The good news? You’re not powerless.
By understanding how the system works and taking steps to maintain or improve your credit, you can potentially lower your insurance premiums and keep more money in your pocket.
