If you’re shopping for a new car insurance policy, a credit check will be one component of getting a rate estimate and getting insurance quotes.

But insurance rates are not purely calculated based on a credit check. There are other variables at play, including where you live, the type of car you drive, your age and your driving record, which will match the rate you pay as closely as possible with the cost of potential claims.

Charles Blankson, chair of marketing for the University of North Texas G. Brint Ryan College of Business, says it’s generally reasonable to factor in a driver’s credit score when setting premiums, but there should be some flexibility in a two-tiered approach.

“It may be best to take calculated risks and make policies available at affordable rates to those with lower credit scores,” he says.

What are the pros and cons of using credit to set premiums?

Blankson says there are pros and cons of using a driver’s credit history when setting car insurance rates.


  • Identifying and rewarding drivers with good credit habits can yield consistent revenue and business stability for insurers.
  • A consumer’s credit history says a lot about them. They can demonstrate reliability in paying bills and it may be appropriate for those drivers to receive a break on premiums as a result. This provides an uninterrupted flow of revenue for the insurance carrier.
  • Accessing good rates due to strong credit can be a morale booster for consumers who may then feel motivated to keep their credit rating at a good level.


  • Insurers may miss out on potential customers by factoring credit rating into premium prices, and some consumers may have difficulty obtaining affordable coverage.
  • If insurance prices are out of reach due to low credit ratings, some drivers may opt to drive without insurance – that’s not good for insurers or for society.
  • In the long term, an insurance company’s growth could be limited if some consumers are priced out of the market, this can have a cascading effect where lower sales lead to lower profits and lower ROI.
Charles Blankson Chair of marketing for the University of North Texas G. Brint Ryan College of Business
Charles Blankson
Chair of marketing for the University of North Texas G. Brint Ryan College of Business

“Sometimes, customers with poor credit scores may be required to pay the entire premium for a six-month policy up front. Customers with low credit scores sometimes won’t qualify for monthly billing, or they may need to pay a large percentage of the policy up front and the remainder monthly,” Charles Blankson, says.

“In any case, fair or not, credit scores often do have an impact on one’s insurance premiums. So, if you want them to go down, it makes sense to try to make your credit score go up.”

Do insurance companies run your credit score?

It’s important to note that while insurance companies do check your credit history, they don’t use your actual credit score. They use the information on your credit report to create their own score designed specifically for them.

The credit score used by lenders predicts your ability to repay a loan. A credit-based insurance score predicts whether you’ll file claims.

What do insurance companies review when calculating your auto insurance score?

Insurance companies say the most important factors for a good credit-based insurance score are long credit history, minimal late payments or past-due accounts and open credit accounts in good standing. Past-due payments, collections, a high debt level, a high number of credit inquiries and a short credit history will hurt your score. Your income, age, ethnicity, address, gender and marital status are not considered as part of the score.

The use of credit for setting premiums is controversial. Some consumer advocates say it unfairly penalizes people with low incomes or those who have job losses – the people who need cheap car insurance the most.

Charles Blankson Chair of marketing for the University of North Texas G. Brint Ryan College of Business
Charles Blankson
Chair of marketing for the University of North Texas G. Brint Ryan College of Business

“Traditional consumers with good credit scores are an essential base for a solid insurance business. These consumers are consistent about paying their bills and insurers should reward them with the best rates,” Blankson says.

”On the other hand, those with low or weak credit scores may have fallen into a bad patch and had difficulty paying bills for a period, but that doesn’t automatically mean that they’re going to be reckless on the road. These individuals could be college students, young adults and others who have faced past financial struggles but are responsible and good citizens who aspire to improve their credit over time.”

How much does insurance go up if you have poor credit?

Bad credit affects car insurance rates, as insurers consider those with poor credit to be more likely to file claims. When you compare full-coverage rates for drivers with good and poor credit, the average increase is 84% higher on average than a driver with good credit – $1,700 more per year, a 2022 CarInsurance.com rate analysis shows.

In which states is it illegal to use credit score as a rating factor?

California, Hawaii, Massachusetts, Michigan and Washington (in effect until three years post-pandemic emergency declarations) prohibit credit from being used to set premium rates. And in Oregon and Utah, policies can’t be canceled/non-renewed due to credit history.

Is there an insurance company that does not use your credit score to determine your rates?

Not all car insurance companies will use credit scores as part of the rating process. In some states, Direct General does not use credit for rating. Most other carriers use it as a rating factor. If you have poor credit and have some violations on your driving record.

– Michelle Megna contributed to this story.

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Executive Editor

Laura is an award-winning editor with experience in content and communications covering auto insurance and personal finance. She has written for several media outlets, including the USA Today Network. She most recently worked in the public sector for the Nevada Department of Transportation.