Does My Credit Score Affect Car Insurance Cost? 

Insurance companies use their own insurance credit score to assess risk and help determine your premium – and it’s based on your credit score and credit.

By Allan Halcrow | American Express Credit Intel Freelance Contributor

5 Min Read | June 14, 2021 in Credit Score



In addition to your credit score, you also have an insurance score, which is the greatest factor in determining your car insurance premium. Generally, the higher your insurance score, the lower your rate. 

Insurers believe that people with poor credit are more likely to file claims.

Although your credit score and insurance score are calculated differently, both are shaped largely by your payment history and debt load.

You likely know that your credit score usually is the most influential factor in how much money you can borrow (if any) and how much it will cost you to do so. You may not know that in most states it also largely determines how much you’ll pay for auto insurance. That’s because your premiums are at least partly determined by your insurance score – a higher score will get you a lower premium – and your insurance score, in turn, is driven by your credit score.


Given that relationship, if you’re seeking greater control over your finances, it probably makes sense to better understand your insurance score and how to improve it. 


Insurance Scores and Credit Scores Are Not the Same – Exactly

Let’s start with the basics: An insurance score is a rating used to predict how likely you are to file an insurance claim. It’s based on your credit score, but there are some key differences. To start with, the range of insurance scores (200-997) is broader than those of credit scores (300-850). Although what defines a “good” score varies depending on different types of insurance and rating companies, it’s safe to say that a higher score is preferable to a lower one. More specifically, an insurance score of 770 or better is favorable while a score of 500 or less is seen as poor.

Although both scores reflect your ability to repay what you borrow, how they’re calculated is not the same. The specific formulas used by insurance companies are often proprietary, but comparing FICO’s credit and insurance score components gives you a sense of how similar they are (see the accompanying chart). 


Comparison of Credit & Insurance Score Elements

Element FICO Credit Score FICO Insurance Score
35% 40%
debt level
30% 30% 
history length
15% 15%
credit applications
10% 10%
10% 5%

Source: FICO1,2


The chart shows the two actions that will do the most to boost your insurance score are the same as those that will most help your credit score:

  1. Pay your bills on time.
  2. Borrow less to lower your credit utilization ratio (the total of how much you owe divided by your total credit limit).


Insurance Scores Don’t Count Income or Job History

Insurers point out that, unlike creditors, they do not consider your income or job history. Though insurers frame that as a plus, it may not be a plus for everyone. For example, insurance scores may be more likely to penalize you for taking out a large loan or using your credit cards a lot – even if you have the income to afford it and pay off your balances each month.

That can be frustrating because your insurance score affects your rates – and they can add up. Say, for example, a low insurance score increases your premium by $25 per month. Assuming your score doesn’t change – and nothing else does, either – over 10 years that will cost you $3,000. I’d rather spend $3,000 on other things.

Ultimately, only you can decide whether some lifestyle changes – for instance, paying down your credit card balance twice a month instead of once to lower your credit utilization ratio – are worth your potential insurance savings. And here’s a final twist: It’s harder to know with certainty how successful you’ve been in improving your insurance score. Why? Because unlike your credit scores, which are easy to get, insurance scores are generally unavailable to consumers. You can, however, get your insurance score through certain information providers, and you can dispute any unwarranted entries. 


Insurers Say Lower Credit Scores Correlate to Higher Claims

It’s a fair question to ask, “Why is my credit score used to determine my car insurance premium?” Insurers insist there is a statistical likelihood that consumers with lower credit scores are more likely to file insurance claims. In other words, insuring those with lower credit scores is a greater financial risk for the insurance company. Although some see the practice as unfair – it’s banned in California, Hawaii, and Massachusetts – there is evidence that the correlation is valid. A 2003 University of Texas study3 and a 2007 study by the Federal Trade Commission4 both found credit scores are effective predictors of car insurance risk.


Whether the practice benefits consumers, too, is a source of debate, despite multiple research studies. For example, a 2013 study claimed that California’s ban saved money for all the state’s drivers.5 But other studies have found that rates increase more for everyone when the risk of costly claims is shared among the general population, rather than by the drivers who are more statistically likely to make such claims.6,7

Insurers began using credit-based scores in the 1990s. Since then, their use has become nearly universal: According to FICO, approximately 95% of auto insurers use credit-based scoring when it’s legal to do so.8 Numbers like that suggest insurance scores are here to stay.


The Takeaway

Car insurance premiums are based on your insurance score, which is based on your credit score – so even if you have a great driving record and have never filed a claim, you may not qualify for the best rates if your credit score doesn’t measure up. But your insurance score is not fixed, and you can improve it by paying your bills on time and limiting how much you borrow.

Allan Halcrow

Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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