How a Low Credit Score Quietly Raises Your Car Insurance Bill

Fact-checked by the The Insurance Scout editorial team

Your credit score car insurance connection is more direct than most drivers realize. In most U.S. states, auto insurers use a credit-based insurance score — a close cousin of your FICO score — to help set your premium. According to the Insurance Information Institute, drivers with poor credit pay an average of 91% more per year than drivers with excellent credit for the same coverage. As of July 2025, this practice is legal in 45 states and actively used by the majority of major carriers.

Why does it matter right now? Auto insurance premiums rose sharply between 2022 and 2024, and carriers are leaning harder on every available rating factor — including credit — to manage risk exposure. For drivers already feeling the squeeze of higher rates, understanding the credit-score-to-premium pipeline is one of the most actionable ways to push back.

This guide is for any driver who has received a rate increase, been quoted a higher-than-expected premium, or simply wants to understand what their credit history has to do with their car insurance bill. By the end, you will know exactly how insurers score you, how much credit affects your rate by tier, and which concrete steps can lower what you pay.

Step 1: How Does My Credit Score Affect My Car Insurance Rate?

Your credit history signals to insurers how likely you are to file a claim and how costly that claim might be — and the data behind this assumption is substantial. Insurers argue that statistical models consistently show a correlation between lower credit scores and higher claim frequency, regardless of driving record.

How Insurers Use This Data

When you apply for or renew a policy, most insurers run a soft credit inquiry — a pull that does not affect your credit score — to generate a credit-based insurance score. This score is then fed into the insurer’s pricing algorithm alongside factors like your driving history, ZIP code, vehicle type, and coverage selections. According to a Federal Trade Commission report to Congress, credit-based insurance scores are statistically predictive of risk — but the FTC also noted that the scores may disadvantage minority and lower-income consumers disproportionately.

Credit is not the only factor, but it carries significant weight. A clean driving record will not fully offset a very low credit score at most carriers.

What to Watch Out For

Many drivers assume their auto rate is driven entirely by their driving record. This misunderstanding leads them to accept quotes without questioning the credit component. Always ask your insurer or agent directly whether a credit-based insurance score was used to calculate your premium.

Step 2: What Is a Credit-Based Insurance Score and How Is It Calculated?

A credit-based insurance score is a specialized score derived from your credit report data, but it is not the same number a mortgage lender or car dealer sees. It is built specifically to predict the probability of future insurance losses, not creditworthiness for repayment.

How to Understand the Calculation

The two dominant models used by insurers are LexisNexis Insurance Score and FICO Auto Insurance Score. Both pull data from Equifax, Experian, and TransUnion. The key inputs, according to FICO’s published documentation, include:

• Payment history — the single largest factor; late payments hurt this score significantly
• Outstanding debt — high balances relative to credit limits (credit utilization) lower the score
• Length of credit history — longer histories generally produce better scores
• Pursuit of new credit — recent hard inquiries suggest financial stress
• Mix of credit types — a blend of revolving and installment accounts is viewed favorably

Notice what is absent: your income, your employment status, and your savings balance. The score is built entirely from credit bureau data.

What to Watch Out For

Do not confuse your VantageScore or FICO 8 score (the scores shown on most free credit monitoring apps) with your insurance score. They are related but distinct. Your insurance score can differ meaningfully from your lending score, and there is no single public portal where you can look up your exact insurance score for free.

Step 3: How Much More Do I Pay for Car Insurance With Bad Credit vs. Good Credit?

The premium gap between credit tiers is large enough to be one of the most impactful factors in your annual car insurance cost — often exceeding the impact of a single at-fault accident. Understanding the exact dollar difference by tier helps you prioritize your credit improvement efforts.

How to Read the Rate Differences

According to NerdWallet’s 2024 national rate analysis, the average annual premium for a full-coverage policy breaks down roughly as follows by credit tier:

These are national averages. State-by-state variation is significant — in some states, the gap between poor and excellent credit exceeds $2,000 per year. Louisiana, Michigan (before its 2020 reform), and Nevada historically show the widest spreads.

It is also worth noting that a single at-fault accident typically raises rates by 40–50% — meaning poor credit alone can cost you as much as a serious accident. For a deeper look at how accidents affect your rate, see our guide on how a single at-fault accident affects your auto insurance rate.

What to Watch Out For

Premium differences vary by carrier. Some insurers weight credit more heavily than others. GEICO, Progressive, and Allstate are known to apply significant credit-based adjustments, while a smaller number of regional carriers weight it less. Shopping multiple quotes is essential, not optional.

Step 4: Which States Ban Insurers From Using Credit Scores for Car Insurance?

Four states — California, Hawaii, Massachusetts, and Michigan — currently prohibit auto insurers from using credit scores or credit-based insurance scores as a rating factor. If you live in one of these states, your credit history cannot legally raise your car insurance premium.

How to Check Your State’s Rules

State insurance departments publish the list of permitted rating factors for auto insurance. Your state’s commissioner website is the authoritative source. You can also check the National Association of Insurance Commissioners (NAIC) credit scoring report, which maps state-by-state rules.

Several other states have partial restrictions. For example, some states prohibit the use of credit as a standalone reason to deny coverage, require insurers to re-run credit checks at renewal upon consumer request, or mandate that credit cannot be the primary rating factor.

What to Watch Out For

State laws can change. Washington State temporarily banned credit scoring during the COVID-19 pandemic, then the ban was overturned in court. Colorado passed legislation in 2021 requiring insurers to demonstrate that credit scoring does not have a disparate impact on minority consumers. Staying current with your state insurance department’s guidance is important, especially at renewal time.

Step 5: How Do I Lower My Car Insurance Rate if I Have Bad Credit?

You have several actionable levers to reduce your premium even before your credit score fully recovers. The most effective approach combines short-term rate shopping with a medium-term credit improvement plan.

How to Take Action Now

1. Shop at least three competing quotes. Because different carriers weight credit differently, the spread between the cheapest and most expensive quote for a poor-credit driver can exceed $1,000 per year for identical coverage. Use comparison tools like The Zebra, Insurify, or NerdWallet’s rate engine, and also call regional insurers directly — they often have more flexible rating models than national carriers.

2. Ask about usage-based insurance (UBI) programs. Programs like Progressive Snapshot, State Farm Drive Safe and Save, and Allstate Drivewise score you on actual driving behavior — speed, braking, mileage — rather than credit. A safe driver with poor credit can often earn discounts of 10–30% through these programs. For a broader look at how coverage decisions affect your costs, our breakdown of liability vs. full-coverage auto insurance is worth reviewing before you shop.

3. Raise your deductible. Moving from a $500 to a $1,000 deductible typically reduces your premium by 10–15%. This shifts risk back to you in the event of a claim, so only choose this if you have adequate savings to cover the higher out-of-pocket cost. Our article on insurance deductibles vs. premiums walks through exactly how to make this tradeoff.

4. Bundle policies. Combining your auto and renters or homeowners insurance with the same carrier typically yields discounts of 5–25% on each policy.

5. Improve your credit score over 6–12 months. Most insurers re-evaluate your credit at each annual renewal. Meaningful score improvement — even moving from “poor” to “fair” — can produce a noticeable rate reduction at your next renewal date without any change to your driving record.

What to Watch Out For

Do not cancel your current policy before a new one is active. A lapse in coverage — even one day — can trigger a “lapse surcharge” that raises your rate more than the credit penalty itself. Additionally, some UBI programs track data that could raise your rate if your driving habits are poor — opt in only if you are genuinely a safe, low-mileage driver.

Step 6: How Do I Dispute a Credit Error That Is Raising My Car Insurance Rate?

Credit report errors are more common than most people realize, and they directly affect your credit-based insurance score. Disputing and correcting an error is one of the fastest ways to lower your rate — and it costs nothing.

How to File a Dispute

Step 1: Get your free credit reports. Pull reports from all three bureaus — Equifax, Experian, and TransUnion — at AnnualCreditReport.com. As of 2023, the three bureaus offer free weekly reports rather than just annual ones, so you can monitor for new errors regularly.

Step 2: Identify the error. Common errors include accounts that are not yours (often from identity theft or a mixed file), incorrect late payment notations, debts listed as open that were paid and closed, and inaccurate balances. According to a Federal Trade Commission study, one in five consumers has a material error on at least one credit report.

Step 3: File a dispute online or by mail. Each bureau has a dispute portal. Submit a written dispute with documentation (account statements, payment confirmations). Under the FCRA, bureaus must investigate within 30 days and correct or remove items they cannot verify.

Step 4: Notify your insurer. Once an error is corrected, contact your insurer and ask them to re-run your insurance score. Many states require insurers to use updated credit data upon consumer request at renewal. If the correction produces a lower-risk score, request a rate adjustment in writing.

What to Watch Out For

Disputing accurate negative information — such as a genuine late payment — will not succeed and wastes time. Focus disputes on verifiable errors only. Also, be aware that if your insurer already used your credit data for the current policy term, a score improvement may not lower your rate until the next renewal, though some carriers will make mid-term adjustments for significant changes.

Managing your credit score is just one piece of the broader insurance picture. If you have experienced a major life event — marriage, divorce, a new home — it is worth reading about when and what to update across all your insurance policies, since life changes can affect your credit-based rates on multiple policy types simultaneously.

Frequently Asked Questions

Does checking my own credit score lower my car insurance rate?

Checking your own credit score (a soft inquiry) has no effect on your insurance rate or your credit score. Only hard inquiries from credit applications affect your score, and insurance companies use soft pulls that are invisible to lenders. You can and should check your own credit regularly without any concern about rate impact.

Can a car insurance company deny me coverage because of my credit score?

Yes, in most states, insurers can decline to offer standard coverage based partly on a poor credit-based insurance score, though they are typically required to offer high-risk policies through assigned risk pools. If a credit-based decision results in denial or higher rates, the insurer must send you an adverse action notice under the Fair Credit Reporting Act, telling you which bureau’s data was used so you can check for errors.

How long does it take for a better credit score to lower my car insurance?

Most insurers re-evaluate your credit score at each annual policy renewal, meaning a credit improvement made today could reduce your rate within 12 months. Some carriers will re-run your score mid-term if you request it in writing, particularly if your score has improved significantly. A score improvement of 50 or more points is generally large enough to move you into a lower rate tier.

Does paying off a car loan improve my credit score for insurance purposes?

Paying off an installment loan like a car loan does improve your overall credit profile, but the impact on your insurance score is indirect and typically modest. The biggest drivers of your credit-based insurance score are payment history and credit utilization on revolving accounts (credit cards). Consistently paying credit card balances on time and keeping utilization below 30% will have more immediate impact than paying off an installment loan.

What is the minimum credit score to get standard car insurance rates?

There is no universal minimum, as every insurer uses its own proprietary model. Generally, a FICO score above 670 (the “good” tier) puts most drivers in the standard market with competitive rates. Scores below 580 typically trigger the highest surcharges or non-standard policy placement. Scores between 580 and 669 fall in a “fair” tier where rates are elevated but manageable.

Is it worth switching car insurance companies if my credit is bad?

Yes — shopping competing quotes is one of the highest-return actions a driver with poor credit can take. Because carriers weight credit differently, the cheapest quote for a poor-credit driver can be 50–70% less expensive than the most expensive quote for the same coverage. Regional insurers, credit unions, and usage-based programs often offer better rates for credit-challenged drivers than national carriers. For filing claims at a new insurer, avoid the common mistakes outlined in our guide to auto insurance claim errors drivers make.

Do all car insurance companies use credit scores?

No. While most major national carriers — including GEICO, Progressive, Allstate, State Farm, and Nationwide — use credit-based insurance scores in all states where it is permitted, some smaller regional carriers and specialized insurers do not. Additionally, certain nonprofit or mutual insurers may weight credit less heavily. Always ask a prospective insurer directly whether a credit-based insurance score is a rating factor before getting a quote.

How is a credit-based insurance score different from a regular credit score?

A credit-based insurance score is built from the same underlying credit report data as your FICO score, but the statistical model is trained to predict insurance losses rather than loan default. As a result, the same data inputs are weighted differently. For example, certain types of debt or inquiry patterns may be more predictive of claim frequency than they are of loan repayment default, so the scoring formula differs. The output score range also differs by model — FICO’s insurance score ranges from 150 to 950, compared to the standard FICO range of 300 to 850.

What happens to my car insurance if my credit score drops suddenly?

If your credit score drops sharply — due to a missed payment, a collection account, or high new credit card balances — your insurer will typically not reprice your policy mid-term. The change will be reflected at your next annual or semi-annual renewal when the insurer re-runs your insurance score. In rare cases, some carriers perform interim credit checks and can adjust rates between renewals. Monitoring your credit and correcting errors before renewal is the best protective strategy.