A credit-based insurance score is similar to your FICO or other reporting agency credit score, but car insurance companies use a unique scoring model to evaluate your credit with more emphasis on payment history and less on the types of credit you use.
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 score1 |
|---|---|---|
| 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% |
How insurance companies use your credit-based insurance score
Once your provider has calculated your credit-based insurance score, they’ll use it—along with other factors, like your driving record, age, and claims history—to help calculate your car insurance rates.
Why your credit score? According to a report made to Congress by the Federal Trade Commission (FTC), drivers with poor credit are more likely to make an insurance claim, meaning they pose a higher financial risk to insurance providers.2
How your credit score affects your rates
While your credit score isn’t the only factor your insurance company will take into account when determining your rates, a report by the Consumer Federation of America (CFA)3 demonstrates just how much your rates are affected by your credit score:
- Drivers with fair credit (601–699) pay 49% more for car insurance than drivers with excellent credit (700+).
- Drivers with poor credit (<600) pay 44% more than drivers with fair credit and 115% more than drivers with excellent credit.
- Drivers with poor credit face average insurance premiums of $1,012 annually for basic coverage
As a general rule, auto insurance providers prefer drivers with a credit score of 750 or higher. If that’s not you, working on your credit can go a long way toward lowering your insurance rates. To illustrate this point, here are the average monthly insurance rates offered to drivers with various credit scores:
| Credit score | State minimum coverage | Full coverage |
|---|---|---|
| Under 600 | $65 | $145 |
| 601-699 | $59 | $132 |
| 700+ | $57 | $121 |
The best car insurance providers for drivers with poor credit
Different insurance companies use different algorithms to determine their rates and, therefore, some providers will offer better insurance quotes to people with poor credit than others. According to data from the Consumer Federation of America, the three insurance providers who offer the lowest average increases for drivers with fair or poor credit are:
- Nationwide: Policyholders with poor credit pay just 57% more than drivers with excellent credit and 16% more than drivers with fair credit scores.
- Allstate: Policyholders saw an 89% increase from excellent to poor credit and 42% from excellent to fair credit.
- GEICO: Coming in third with an average increase of 91% from excellent to poor credit, GEICO still offers more affordable options to drivers with poor credit compared with other providers.
To help you better understand credit-based insurance rates, here are the average rate increases offered by different insurance providers:
| Provider | Excellent to fair | Fair to poor | Excellent to poor |
|---|---|---|---|
| Allstate | 42% | 33% | 89% |
| GEICO | 40% | 36% | 91% |
| Farmers | 45% | 44% | 109% |
| Nationwide | 35% | 16% | 57% |
| Progressive | 64% | 51% | 148% |
| State Farm | 79% | 82% | 225% |
| Travelers | 65% | 56% | 157% |
| USAA | 31% | 47% | 92% |
Some states are phasing out credit-based insurance scores
In just four states—California, Hawaii, Massachusetts, and Michigan—the use of credit-based insurance scores to determine premiums is currently prohibited.
However, some other states are starting to follow suit, too. Some recent efforts to reform the use of credit in auto insurance include:
- Colorado State Bill 21-169 (SB 21-169): This bill, signed into law in 2021, is a sweeping overhaul of the insurance industry aimed at protecting consumers from discrimination.4
- Maryland: In 2022, two Maryland legislators proposed bills to outlaw the use of credit in auto insurance underwriting, but neither bill passed.
In addition to these state-level bills, a group of Congresspeople has recently proposed the Prohibit Auto Insurance Discrimination (PAID) Act (H.R. 3693). This bill would prohibit insurance companies from calculating rates based on credit as well as:5
- Gender
- Education level
- Occupation
- Employment status
- Homeownership
- ZIP code
- Marital status
The PAID Act is currently still under review in Congress.
How to improve your credit-based insurance score
If you’re looking for a better rate on your insurance policy, there are several things you can do to improve your credit-based insurance score for lower premiums. Here are a few of them:
- Credit cards can improve your credit score as long as you maintain low credit utilization.
- If you have an auto loan or other regular loan payments, make regular payments to maintain good credit. If you’re having difficulty making payments, talk to your lender about refinancing your loan.
- Try not to open any additional lines of credit, as taking on more debt can lower your credit score.
FAQ
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What is a car insurance premium?
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Is a credit-based insurance score the same as a regular credit score?
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Is it legal for insurance companies to use credit scores in determining insurance rates?
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How do you get a copy of your credit report?
Sources
- https://content.naic.org/article/consumer-insight-credit-based-insurance-scores-arent-same-credit-score-understand-how-credit-and-other-factors ↩︎
- https://www.ftc.gov/sites/default/files/documents/reports/credit-based-insurance-scores-impacts-consumers-automobile-insurance-report-congress-federal-trade/p044804facta_report_credit-based_insurance_scores.pdf ↩︎
- https://consumerfed.org/wp-content/uploads/2023/07/Official-CFA-Credit-Score_2023-FINAL-REPORT.pdf ↩︎
- https://doi.colorado.gov/for-consumers/sb21-169-protecting-consumers-from-unfair-discrimination-in-insurance-practices ↩︎
- https://www.congress.gov/bill/116th-congress/house-bill/3693/text?q=%7B%22search%22%3A%5B%22consumer%22%5D%7D&r=16&s=1 ↩︎
Liz Jenson is an insurance writer who specializes in general automotive and insurance topics. Liz’s mission is to produce informative and useful content to help car owners make smart choices when buying cars and car insurance. Since joining Jerry in 2021, Liz has written nearly 4,000 long- and short-form articles on topics including state-specific insurance recommendations, common car insurance questions, and deep dives into vehicle model details. Before they came to Jerry, Liz was a full-time student at Indiana University, Bloomington working on a double major in English and French.
Sarah Gray is an insurance writer with nearly a decade of experience in publishing and writing. Sarah specializes in writing articles that educate car owners and buyers on the full scope of car ownership—from shopping for and buying a new car to scrapping one that’s breathed its last and everything in between. Sarah has authored over 1,500 articles for Jerry on topics ranging from first-time buyer programs to how to get a salvage title for a totaled car. Prior to joining Jerry, Sarah was a full-time professor of English literature and composition with multiple academic writing publications.
