A credit-based insurance score is similar to a score from an agency like FICO, but car insurance companies use a unique scoring method to evaluate your credit with more emphasis on payment history and less on the types of credit you use.
Insurance score vs. credit score
While both scores use credit report data, they focus on different aspects of your report and use unique models to assess risk.
- A credit score is primarily used by lenders to assess your creditworthiness, meaning how likely you are to repay borrowed money. Factors like payment history, credit utilization, and length of credit history all contribute to your credit score.
- An insurance score is used by insurance companies to help determine your insurance premiums. It tries to predict the likelihood that you’ll file an insurance claim and the potential cost of that claim.
Here’s a breakdown of how a standard FICO credit score is determined versus an insurance-based credit score:
| Factor | FICO score | Credit-based insurance score |
|---|---|---|
| Payment history/past credit performance | 35% | 40% |
| Outstanding debt | 30% | 30% |
| Length of credit history | 15% | 15% |
| New credit | 10% | 10% |
| Credit mix | 10% | 5% |
Does credit score affect car insurance costs?
Yes, in states where it is legal to use a driver’s credit score to determine their car insurance premiums, credit score can affect premium costs. Once your provider has calculated your credit-based insurance score, it — along with other factors, like your driving record, age and claims history — is used to help calculate your car insurance rate.
How does credit score affect my car insurance rate?
Your credit score is one of many factors that insurers use to calculate your premium, but a low score may lead to a higher rate. According to a 2007 Federal Trade Commission (FTC) report, drivers with poor credit are more likely to make an insurance claim, meaning they pose a higher financial risk to insurers.
Here are the average monthly insurance rates offered to drivers with various credit scores, according to Jerry’s quote data.
| Credit score | Average monthly quote |
| Less than 550 | $268 |
| 550 to 659 | $263 |
| 660 to 750 | $235 |
| Greater than 750 | $189 |
*Sample quotes are for drivers who shopped for car insurance with Jerry on or after Jan. 1, 2024 and selected Camry as their car model, requested state minimum coverage, have no violations on their records and don’t live in CA, HI, MD, MA, MI, NV, OR or UT.
Some states are phasing out credit-based insurance scores
The use of credit-based insurance scores to determine premiums is prohibited in California, Hawaii and Massachusetts.
In Michigan, insurers can’t use your credit score or credit history to deny you coverage or cancel your existing policy. But they can use credit information to determine how you’ll pay your premium (monthly installments versus paying in full, for example).
How to improve your credit-based insurance score
Here are a few ways to improve your credit for a chance at a lower premium.
- Pay bills on time. If you have an auto loan or other regular loan payments, make on-time payments to maintain good credit.
- Pay down debt. Generally, the less debt you have, the better.
- Keep your credit utilization low. Using credit cards can improve your credit score as long as you pay the balance each month and maintain low credit utilization. Using a large portion of your available credit may indicate that you’re overextended and may struggle to make bill payments on time. If your utilization is high, consider requesting a higher limit on your credit card.
- Avoid opening new credit. Taking on more debt can lower your credit score.
FAQ
-
Is it legal for insurance companies to use credit scores in determining insurance rates?
-
How do you get a copy of your credit report?
Megan Lee is an editor, writer, and SEO expert who specializes in insurance, personal finance, travel, and healthcare. She has been published in U.S. News & World Report, USA Today and elsewhere, and has spoken at conferences like that of NAFSA: Association of International Educators. Megan has built and directed remote content teams and editorial strategies for several websites, including NerdWallet. When she`s not crafting her next piece of content, Megan adventures around her Midwest home base where she likes to drink cortados, attend theme parties, ride her bike and cook Asian food.
Annie is a content strategist at Jerry and has more than a decade of experience writing and editing digital content. Before joining Jerry, she was an assistant assigning editor at NerdWallet, where she covered loans. Previously, she worked at USAA and newspapers in Minnesota, North Dakota, California, and Texas. She holds a bachelor’s degree in journalism from the University of Minnesota.
