How Your Credit Score Affects Car Insurance Rates (And Which States Ban It)

In most US states, your credit history has as much influence on what you pay for car insurance as your driving record. A driver with a spotless driving record but poor credit frequently pays significantly more for full coverage than a driver with excellent credit who has an at-fault accident on their record.

Understanding how insurers utilize credit data and which jurisdictions restrict the practice helps consumers identify unfair pricing and seek competitive quotes.

What Is a Credit-Based Insurance Score?

A Credit-Based Insurance Score (CBIS) is a specialized scoring model developed by data analytics firms such as FICO and LexisNexis. While standard FICO scores evaluate creditworthiness and loan default probability, an insurance score assesses statistical claim likelihood.

Actuarial research conducted by the NAIC and FTC demonstrates a strong correlation between lower insurance credit scores and higher claim frequency and claim severity.

Insurers evaluate several elements from your credit report:

• Payment history (on-time payments vs collections or charge-offs).
• Outstanding debt and credit utilization ratio.
• Length of established credit history.
• Pursuit of new credit accounts (hard inquiries).
• Diversity of credit mix (revolving credit cards vs installment loans).

Importantly, your insurance score does not factor in your income, net worth, race, ethnicity, or employment status.

States That Prohibit or Limit Credit Scoring in Auto Insurance

Recognizing that credit-based insurance rating disproportionately impacts lower-income drivers, several state legislatures and insurance commissioners have banned or restricted the practice:

• California: Proposition 103 mandates that rates be based primarily on driving record, annual miles driven, and years of driving experience. Credit scoring is strictly illegal.
• Hawaii: State law prohibits credit scoring in personal auto underwriting.
• Massachusetts: State insurance regulations bar credit history from rating factors.
• Michigan: 2020 auto insurance reforms prohibit insurers from using credit score directly, though insurance scores derived from non-credit factors are allowed under specific guidelines.

If you reside in a state that permits credit scoring, improving your credit score from the “Poor” band (under 580) to “Good” (670–739) can lower your annual auto insurance premiums by $500 to $1,200 per year.