In most states, it is legal for car insurance companies to raise your premiums if you have a poor credit score. Insurers use credit-based insurance rates to determine the likelihood of you filing a claim.
However, a few states, including California, Massachusetts, Michigan and Hawaii, prohibit using credit information when setting car insurance rates. If you live in a state where it’s allowed, your premium may increase if your credit score drops.
How often do insurance companies check your credit score?
Insurance companies typically check your credit scores when you apply for a new policy or when your policy is up for renewal. It helps them assess your risk profile and determine your premium.
When applying for auto insurance, the insurer might run a credit check as part of the underwriting process. Some insurers periodically review your credit score when your policy is renewed, often annually, to adjust your rate if your credit profile has significantly changed.
Do all insurance companies use credit scores?
Not all insurance companies use credit scores to calculate car insurance rates, but many do. Credit-based insurance rates are standard because they help insurers predict the likelihood of future claims. However, whether or not an insurer uses credit information depends on the company’s policies and state laws.
Some insurers may rely heavily on credit scores as a rating metric, while others might emphasize driving history, vehicle type, location and other factors.
How a poor credit score can affect your car insurance rate
A poor credit score can significantly increase your car insurance rates. Many insurance companies use a credit-based insurance score to help determine how much risk you pose as a policyholder.
Drivers with poor credit are often charged much higher premiums than those with good or excellent credit. If your credit score drops over time, your insurer may increase your premium at renewal. On the other hand, improving your credit could lower your rates with some companies.
If you have a poor credit score, it’s worth shopping around. Insurers weigh risk differently, and some may offer better rates than others.
Final thoughts
Your credit score can significantly affect how much you pay for car insurance in most states. If your score isn’t great, shopping around and comparing quotes is smart. Some insurers offer more affordable premiums than others, and improving your credit over time can also help you get better rates.
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