Does Your Credit Score Affect Your Car Insurance Rates?

By the Mercury Team

When shopping for car insurance, you may wonder: Does my credit score affect my auto insurance rates? The answer isn’t the same for everyone. In many states, insurers use what’s called a credit-based insurance score to help set rates. But in other states, laws prevent credit from being used at all.

Let’s break down how credit can influence auto insurance, where it does and doesn’t apply, and what other factors go into your rate.

Do Car Insurance Companies Check Your Credit Score?

In most states, car insurance companies look at your credit history when setting premiums, but not in the same way a bank does. Instead, they use a credit-based insurance score.

A traditional credit score (like FICO or VantageScore) is meant to show how likely you are to repay a loan. On the other hand, a credit-based insurance score is designed to estimate your risk as a driver and whether you might file a claim in the future. In fact, a Federal Trade Commission (FTC) study suggests that there’s a link between credit and the likelihood of filing a claim. The better your credit, the lower your chances of filing a claim (and vice versa).

Credit-based insurance scores use many of the same building blocks as a regular credit score, including:

• Payment history
• Outstanding debt
• Length of credit history
• Types of credit accounts

However, it typically doesn’t include income, employment history, or personal details like your age or gender. Those factors aren’t part of the credit-based score itself, though insurers may still consider some of them separately when setting rates.

How Does Your Credit Score Impact Insurance Rates?

Having a strong credit score can help you save on car insurance. Insurers see people with good credit as less risky, which usually translates into lower premiums. According to the most recent data from Bankrate, drivers with excellent credit pay around $2,300 a year for full coverage car insurance.

On the flip side, a lower credit score can mean paying more in monthly premiums. The same data from Bankrate states that drivers with poor credit pay an average of approximately $4,700 per year for full coverage. That’s nearly 76% more than what drivers with excellent credit pay.

However, keep in mind that credit is just one piece of the puzzle. Insurers also look at your driving record, the type of car you own, where you live, and how much you drive. That means even if your credit isn’t perfect, safe driving and smart coverage choices can still help lower your costs.

In What States Is a Credit Score Not Used for Car Insurance?

Several states have chosen to ban or restrict the use of credit-based scores in auto insurance decisions.

Currently, these states include:

• California
• Hawaii
• Massachusetts
• Michigan
• Maryland
• Oregon
• Utah

California, Hawaii, Massachusetts, and Michigan cannot use credit scores as a factor to set premiums or make underwriting decisions. On the other hand, Oregon, Utah, and Maryland have partial restrictions or controls on how credit information is factored in.

If you’re unsure how your state handles credit-based insurance scores, it’s smart to check with your state’s insurance department or talk to a local agent. That way, you’ll know exactly what factors do or don’t go into your auto insurance pricing.

What Other Factors Affect Your Car Insurance Rates?

Insurers look at various factors to figure out how risky you might be to insure. Here are some of the biggest ones:

Driving Record and Claims History

If you’ve had speeding tickets, accidents, or DUIs, your premium is almost guaranteed to be higher. However, if you keep your record clean and claims low, you’ll typically earn better rates.

Age

Teen drivers typically pay the most because they’re considered high-risk. Rates usually drop as you gain more experience, though they may climb again once you hit your senior years.

Gender

Young men usually pay more than young women, since they’re statistically involved in more accidents. However, that pay gap typically narrows over time.

Martial Status

If you’re married, you might get a break on your rate because married drivers tend to be involved in fewer crashes.

Car Type

Sports cars, luxury vehicles, or models that are expensive to repair usually cost more to insure. Safer, more practical vehicles usually come with lower premiums.

Mileage

Annual mileage also impacts rates. More miles on the road means higher accident risk, so higher premiums. On the other hand, low-mileage drivers may qualify for auto insurance discounts or pay-per-mile programs.

Location

Location also plays a role. Living in a busy city with heavy traffic or higher theft rates usually means steeper insurance prices compared to quieter suburban or rural areas.

Coverage Levels and Deductibles

If you buy more protection or select lower deductibles, you’ll pay more in premiums. If you’re comfortable with a higher deductible, you can bring your rate down. However, make sure it’s an amount you could realistically afford in an emergency.

Can You Improve Your Credit Score to Lower Your Car Insurance Premiums?

Yes, you can. While it won’t change your premium overnight, building stronger credit shows financial responsibility, which may secure lower costs for you. Here are a few tips to consider:

• Pay your bills on time: Your payment history is one of the most important parts of your credit score, so consider setting up automatic payments or reminders on your phone so you don’t miss a due date.
• Tackling debt balances: Carrying high balances on your credit cards can drag your score down. A good rule of thumb is to keep your balances below 30% of your total available credit. The more you chip away at your debt, the better your chances of lowering your insurance rates.
• Go easy on new credit: Each time you apply for a new credit account, it can trigger a hard inquiry (i.e., when a lender requests your full credit report) that may knock a few points off your score. If you can, spread out applications and only open new accounts when you really need them.

How Can Mercury Insurance Help You Save?

If you’re looking for ways to save on car insurance, Mercury Insurance offers different types of auto insurance discounts to help you lower your monthly premium. Some of these savings options include:

• Multi-policy discount for bundling auto with home or renters insurance.
• Multi‑car discount for insurance for more than one vehicle on the same policy.
• Good driver discount for having a clean driving record over a certain amount of time.
• Good student discount for younger drivers who maintain great grades.
• Pay in full discount for paying your entire car insurance term up front.
• Anti-theft feature discount for installing approved safety or security devices in your vehicle.

Mercury also looks at more than just your credit score. Your driving record, vehicle, mileage, and location all factor into a personalized quote that reflects your unique situation.

Final Thoughts About Auto Insurance and Credit Score

Your credit score can play a role in what you pay for car insurance, but it’s not the only factor. Plus, in some states, it isn’t used at all. Insurers also look at your driving history, the type of car you own, how much you drive, and the coverage you choose. That means there are plenty of ways to save, even if your credit isn’t perfect.

Wondering how much you can save with Mercury? Contact us today for a fast, free quote, and we’ll help you build a policy that suits your needs and budget.