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How Much Does Credit Score Affect Auto Insurance Rates?

Many auto insurance companies use a credit-based auto insurance score to help them decide whether to take you on a policyholder, as well as the premium you'll pay if they do. While it's only one of many factors that go into determining your rate, having good credit can help you save money.

How Do Credit-Based Auto Insurance Scores Affect Rates?

Credit-based insurance scores are different from the credit scores that most people are familiar with—the credit scores that FICO® and VantageScore® calculate for use by creditors. While credit scores try to predict the likelihood that a consumer will be 90 days late on a payment in the next 24 months, credit-based insurance scores try to predict the likelihood that a consumer will file insurance claims that will cost the company more money than it collects in premiums.

Auto insurance companies can, and often do, consider your credit history or use a credit-based insurance score before offering you coverage. It's only one piece of the puzzle, however, as insurance companies are generally prohibited from making a decision solely based on your credit.

Some states—including California, Hawaii, Massachusetts and Michigan—strictly limit or entirely prohibit insurance companies' use of credit information in determining auto insurance rates. In these states, your credit score won't affect your insurance rates no matter how good or bad it is.

What Else Do Auto Insurers Look at to Determine Rates?

Whether or not an insurance company uses a credit-based insurance score, a wide range of factors are considered to determine your eligibility and rates. These can include:

  • Your driving record
  • Where you live
  • Demographics (your age, gender and marital status, for instance)
  • The type of vehicle you're insuring
  • The types of insurance you want, coverage amounts and the deductibles

Insurance companies may take other factors into consideration as well, such as whether you qualify for discounts. A few companies also offer pay-per-mile policies, which tie cost to your usage. Or, there are companies like Root Insurance that use an app or install a device to track behavior such as how fast you drive and how aggressively you brake, and use the data to determine your eligibility and costs.

How to Improve Your Credit Score

While credit scores and credit-based insurance scores may be different, both types of scores consider similar behavior. If you have a high credit score, your credit-based insurance score is probably also high. If your credit score is low, taking action to improve it is likely to also give your credit-based insurance score a bump. Here's what you can do:

  • Pay your bills on time every month as agreed.
  • If you miss a payment, bring your account current as soon as possible.
  • Decrease your credit utilization rate by paying down credit card debt.
  • Check your credit report to ensure all the information there is accurate and up to date.

You can't check your credit-based insurance scores online, but Experian offers free access to your credit report and a credit score based on your Experian credit file. Using these tools, you can monitor your credit and get tips for improving your score.

How to Get a Better Price on Car Insurance

In addition to improving your credit, there are many ways to reduce your auto insurance costs.

Many insurance companies offer discounts that can lower your premiums. These may include a good driving discount if you haven't gotten in an accident recently, or multiple-vehicle and multiple-policy discounts when you insure several vehicles or carry different types of insurance from the same company. You may also be able to qualify for a discount based on affiliations, such as an alumni association or through your employer.

Your insurance company might not tell you about all the discounts upfront, or might not realize which ones you should receive. If you install anti-theft devices in your vehicles or aren't driving often right now, for instance, calling your insurer and letting them know may qualify you for new discounts.

You may also be able to lower your costs by choosing a policy with lower coverage limits or higher deductibles. If you have an older vehicle and don't have a loan or lease, only purchasing liability coverage (rather than full coverage, including collision and comprehensive) can also lead to significant savings.

Finally, shop for auto insurance policies periodically to make sure you're getting the best price for your coverage. Even if you've paid for six months or a year in advance, you may be able to switch insurers to lock in the savings and get a prorated refund from your original insurer.

Keep an Eye on Your Regular Expenses

From subscription services to insurance, it can be easy to categorize monthly and periodic bills as fixed expenses. By shopping around, however, you can often find ways to decrease expenses, leading to regular and continued savings for months to come. Having good credit can also help you qualify for lower-cost financing, and make it easier to rent an apartment or find a new job.

In addition to providing free credit reports and score tracking, Experian offers the free Experian Boost tool, which lets you add utility, phone and certain streaming service payments to your credit history. If you have a history of paying these types of bills on time, you may be able to quickly boost your scores.