Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer

UPDATED: Jul 14, 2021

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In a nutshell...

  • Your credit score can have both a negative and positive effect on your car insurance rates
  • Your driving history also plays a role when calculating your premiums
  • Comparing car insurance quotes can help you save money

Many people ask, “Why should my credit score have anything to do with the cost of my car insurance?” This seems a fair question. After all, being late paying your bills does not make you a bad driver, does it?

According to the car insurance industry, however, it does. More accidents claims, speeding tickets, and other violations cost car insurance companies more by drivers with bad credit than those with good credit, in a statistical sense.

One school of thought on this is that people with poor credit tend to have less expensive vehicles which are not maintained as well as those with expensive cars.

Poor maintenance can lead to a variety of problems which can cause accidents – faulty breaks, breaking down in traffic, and cracked glass which impedes vision.

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Does my credit score matter?

Actually, your credit score may not impact your insurance costs at all, depending on your company and your state.

There are only two states, Maryland and California, which do not allow credit scores to affect insurance rates, but there are some companies which do not use them in spite of most states allowing the practice.

You will have to check with your auto insurance provider to be sure, but a recent insurance industry report estimated that about 92 percent of all companies do use credit scores in some way to determine rate structures.

Having bad credit will definitely change your premium structure in most states and with most companies. But by how much?

The change can be significant, depending upon how low your score is. Credit scores are calculated based on numbers between 300 and 900. An average credit score falls somewhere in the 700 range.

Anything below that is considered “low,” although obviously, a 400 is much worse than a 600.

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Insurance companies tend to band together groups of scores, with categories such as “extremely low,” (perhaps 300 to 450), “low” (450 to 550), “moderately low (550 to 650), “average” (650 to 750), and high (750 and above). These are not actual categories, but an example of something a company might use.

Customers in the “extremely low” category would pay more than those in the “low” category, and so on.

If you are in the very lowest credit score bracket, your car insurance premiums could be as much as twice what your higher counterparts pay. This is because those in the very lowest brackets are statistically most likely to have accidents, speeding tickets and generally just file more claims.

Those in the “low” and “moderately low” categories would pay more than those in the “average,” but less than those in “extremely low.”

The difference in premium prices is gauged toward just how low your credit score is, and how statistically likely people are to file a future claim.

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How to Lower Your Premiums

First, you should pay at least the minimum on your bills each month. If you find this impossible to do, talk to a credit counselor or bankruptcy attorney about your options.

Continuing to go deeper into debt does not solve the problem; it only prolongs the agony, so beware of “consolidation loans” which may leave you worse off than before.

You can also check your credit score with each of the three major credit bureaus, and dispute any items which are incorrect.

Removing incorrect items from your credit report may help your score significantly. If this happens, talk to your insurance agent about refiguring your rates.

You may also be able to find more affordable insurance by shopping with companies which do not use credit scores. It will take some searching but there are many companies who do not use this practice.

Online search engines and quote generators can help you in this regard; you can also search for “insurance companies which do not use credit scores.”

Find an agent for one of these companies and get a quote – you may be surprised how much less your car insurance can be just by switching companies.

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