Car insurance rates by credit score

10:02 21/05/2022 | 7 Lượt xem

Car insurance rates are determined using a number of personal factors, and in most states the way you handle credit is one of them. Drivers with a poor credit history pay an average of $3,002 per year for full coverage, according to 2022 rate data from Quadrant Information Services. That’s a staggering 93% more than drivers with excellent credit, who have an average annual full coverage premium of $1,556. Bankrate can help you understand why your credit history can affect your car insurance rates and what steps you can take to improve your credit standing and potentially lower your premium.

Car insurance rates by credit tier

Credit history is used in nearly every state as a car insurance rating factor. Statistically, drivers with lower credit scores are more likely to file a claim, as actuarial studies show that how a person manages their financial affairs is a good predictor of filing an insurance claim, according to the Insurance Information Institute (Triple-I). Because the risk of paying a claim is greater, car insurance companies charge higher premiums for drivers with lower credit scores.

National average annual full coverage premium by credit rating

POOR CREDIT AVERAGE CREDIT GOOD CREDIT EXCELLENT CREDIT
$3,002 $1,907 $1,771 $1,556

 

Why does your credit score affect car insurance rates?

While your credit history often impacts your auto insurance rates, your pure credit score isn’t what companies look at. Insurance companies use what is called a credit-based insurance score, which assesses certain elements of a consumer’s credit history to determine how likely they are to have an insurance loss. Insurance underwriters are not concerned with how much money you make, but rather with how well you manage your money. While each insurer has its own proprietary underwriting system for calculating an insurance-based credit score, common factors that determine this score typically include:

  • Outstanding debt: This is the amount of debt you currently have.
  • Credit history length: This shows how long you have had an open line of credit.
  • Credit mix: This reflects different lines of credit, such as auto loans and credit cards.
  • Payment history: This shows how well you have managed to pay your debts over time.
  • Pursuit of new credit: This shows recent attempts to open new lines of credit.

Together, these factors help insurance companies assess their insureds’ level of risk. Studies have shown that there is a correlation between credit-based insurance scores and claims filed. Statistically, the lower your insurance score, the more likely you are to file an insurance claim. Because of this increased risk, insurance companies tend to charge more if you have a lower credit score.

 

How credit score impacts insurance premiums by state

Most states allow insurance companies to use credit as a rating factor when pricing policies. Because of this, the average cost of car insurance changes based on the state you live in and your credit tier.

The table below shows the average full coverage premium in most states and Washington, D.C., sorted by credit tier. California, Hawaii, Massachusetts and Michigan prohibit or restrict the use of credit as a rating factor for car insurance policies. Several other states also have legislation currently in the legal process to ban credit as a rating factor.

Annual full coverage premium by state and credit rating

POOR AVERAGE GOOD EXCELLENT
Alabama $3,117 $1,896 $1,760 $1,543
Alaska $2,451 $1,869 $1,770 $1,610
Arizona $3,118 $1,903 $1,743 $1,527
Arkansas $3,646 $2,002 $1,806 $1,521
California* $2,190 $2,190 $2,190 $2,190
Colorado $3,355 $2,192 $2,019 $1,670
Connecticut $2,880 $1,700 $1,533 $1,241
Delaware $3,280 $2,140 $1,963 $1,655
Florida $5,477 $3,124 $2,762 $2,319
Georgia $3,172 $2,122 $1,985 $1,754
Hawaii* $1,206 $1,206 $1,206 $1,206
Idaho $1,755 $1,146 $1,065 $954
Illinois $2,455 $1,649 $1,548 $1,329
Indiana $2,013 $1,337 $1,242 $1,078
Iowa $2,230 $1,393 $1,254 $1,078
Kansas $2,987 $1,942 $1,802 $1,571
Kentucky $3,572 $2,148 $1,954 $1,671
Louisiana $5,416 $3,147 $2,864 $2,433
Maine $1,529 $949 $876 $783
Maryland $3,127 $2,094 $1,931 $1,665
Massachusetts* $1,297 $1,296 $1,296 $1,296
Michigan* $5,896 $2,644 $2,345 $1,798
Minnesota $3,155 $1,849 $1,692 $1,459
Mississippi $3,082 $1,859 $1,701 $1,482
Missouri $3,006 $1,995 $1,861 $1,566
Montana $2,846 $1,889 $1,795 $1,572
Nebraska $2,873 $1,702 $1,538 $1,304
Nevada $3,505 $2,569 $2,426 $2,168
New Hampshire $2,202 $1,320 $1,182 $950
New Jersey $3,468 $2,087 $1,891 $1,474
New Mexico $2,405 $1,570 $1,489 $1,323
New York $6,835 $3,339 $2,996 $2,464
North Carolina $1,743 $1,439 $1,392 $1,340
North Dakota $2,284 $1,375 $1,225 $1,025
Ohio $2,118 $1,304 $1,200 $1,009
Oklahoma $3,379 $2,067 $1,902 $1,664
Oregon $2,300 $1,494 $1,371 $1,202
Pennsylvania $2,860 $2,115 $2,002 $1,823
Rhode Island $3,039 $2,098 $1,847 $1,649
South Carolina $2,794 $1,600 $1,464 $1,195
South Dakota $3,253 $1,719 $1,542 $1,260
Tennessee $2,654 $1,549 $1,383 $1,192
Texas $3,088 $2,033 $1,868 $1,620
Utah $2,551 $1,578 $1,449 $1,224
Vermont $1,674 $1,077 $1,000 $885
Virginia $2,344 $1,456 $1,340 $1,113
Washington $1,366 $1,321 $1,313 $1,296
Washington, D.C. $3,138 $2,107 $1,948 $1,751
West Virginia $2,597 $1,676 $1,527 $1,301
Wisconsin $5,377 $1,394 $1,249 $1,040
Wyoming $2,454 $1,616 $1,510 $1,264

*These states prohibit or restrict the use of credit as a rating factor.

 

What can I do to improve my credit score?

Your credit score is an important part of your overall financial health. A high credit score can help you get approved for loans, qualify for lower interest rates or get a higher credit limit. If your credit score is not the best, there are ways that you can improve it. Although it may take time, improving your credit score might help you to lower your car insurance premiums by increasing  your insurance score.

Pay your bills on time

One aspect of a credit-based insurance score is your payment history. If you have a history of overdue bills and credit delinquencies, this could be an indication to companies that you do not manage your money well, which means you may not have the funds available to pay for small damages out of pocket. That in turn may lead to you filing more claims. Consistently paying your bills by the due date might help to increase your overall credit score and your insurance score.

Keep hard credit inquiries to a minimum

Credit inquiries come in two forms: hard checks and soft checks. Whenever you apply for a line of credit, the company considering you as a customer will pull your credit report, which constitutes a hard inquiry and does affect your score. When insurance companies review your credit in the quoting process, that is considered a soft inquiry and shouldn’t have an impact on your actual credit tier. Too many hard inquiries can have a negative impact on your score. If you are trying to build your credit, you may want to consider waiting to apply for a loan or line of credit.

Monitor your score regularly

Monitoring your credit score can be beneficial in several ways. When you know your score, you can more easily take steps to improve it. Regular reviews of your credit reports can also help you to identify inaccuracies or fraudulent activity. If you see anything suspicious, you can take steps to dispute it.

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