Do Car Insurance Companies Check Your Credit?

Yes, most car insurance companies check your credit—especially when you’re applying for a new policy or renewing an existing one. While it might seem unfair, insurers use credit-based insurance scores to predict risk and set premiums. Understanding how this works can help you take control of your rates.

Key Takeaways

• Most insurers use credit-based insurance scores: Over 90% of auto insurers in the U.S. consider your credit when setting premiums, especially in states where it’s legally allowed.
• It’s not your FICO score: Insurers use a specialized credit-based insurance score, which weighs factors like payment history and debt differently than traditional credit scores.
• Better credit often means lower premiums: Drivers with good credit typically pay significantly less for car insurance than those with poor or fair credit.
• Not all states allow it: California, Hawaii, Massachusetts, and Michigan prohibit the use of credit in auto insurance pricing, so your credit won’t affect your rates there.
• You have rights: If your credit affects your premium, insurers must disclose this and provide an adverse action notice if you’re denied coverage or charged more.
• Improving your credit takes time—but it pays off: Paying bills on time, reducing debt, and monitoring your credit report can gradually improve your insurance rates.
• Shop around: Different insurers weigh credit differently, so comparing quotes can help you find the best deal regardless of your credit profile.

Do Car Insurance Companies Check Your Credit?

You’re shopping for car insurance, comparing quotes online, and suddenly you see a checkbox: “I authorize a credit check.” Your stomach drops. Why would your auto insurance company care about your credit? Isn’t that for loans and credit cards?

The short answer? Yes—most car insurance companies do check your credit. And it’s completely legal in most states. While it might feel invasive, insurers argue that your credit history helps them predict how likely you are to file a claim. The better your credit, the lower your perceived risk—and often, the lower your premium.

But here’s the good news: understanding how and why insurers use your credit can help you take control. You’re not powerless. With a little knowledge and some proactive steps, you can improve your credit profile and potentially save hundreds—or even thousands—of dollars over time.

In this guide, we’ll break down everything you need to know about how car insurance companies use your credit, why they do it, and what you can do about it. Whether you’re a first-time driver or a seasoned policyholder, this information can help you make smarter decisions and keep more money in your pocket.

Why Do Insurance Companies Care About Your Credit?

At first glance, it might seem odd that your ability to pay bills on time affects how much you pay for car insurance. After all, your driving record, age, vehicle type, and location are all directly related to risk on the road. So why bring credit into the mix?

The reason lies in decades of actuarial data. Insurance companies have found a strong correlation between credit history and the likelihood of filing a claim. Studies show that people with lower credit scores tend to file more frequent and more expensive claims than those with higher scores. This doesn’t mean poor credit causes bad driving—it’s not about morality or responsibility in the traditional sense. Instead, it’s about patterns of behavior that suggest financial instability, which insurers believe may translate into higher risk.

For example, someone struggling with debt might delay vehicle maintenance, drive an older, less safe car, or even let their insurance lapse—all of which can increase the chances of an accident or claim. On the flip side, someone with strong credit habits—like paying bills on time and managing debt responsibly—may be more likely to maintain their vehicle, drive safely, and avoid risky behaviors.

Insurance companies use this data to create what’s called a credit-based insurance score. This score is different from your FICO or VantageScore, though it’s based on similar information from your credit report. The score helps insurers assess risk more accurately and set premiums that reflect the likelihood of a claim.

How Is a Credit-Based Insurance Score Calculated?

So, what exactly goes into a credit-based insurance score? While each insurer may use a slightly different model, most rely on the following factors:

• Payment history (35–40%): This is the biggest factor. Insurers want to know if you pay your bills on time. Late payments, defaults, and collections can significantly lower your score.
• Amounts owed (30–35%): How much debt you have compared to your credit limits matters. High credit utilization—using more than 30% of your available credit—can hurt your score.
• Length of credit history (15%): A longer credit history gives insurers more data to work with. If you’re new to credit, your score may be harder to assess.
• Credit mix (10%): Having a variety of credit types—like credit cards, auto loans, and mortgages—can be a positive signal.
• New credit (10%): Opening several new accounts in a short time can look risky, as it may indicate financial stress.

It’s important to note that insurers don’t see your actual credit score. Instead, they receive a proprietary insurance score generated by companies like LexisNexis, Verisk, or FICO. These scores are designed specifically for risk assessment in insurance contexts.

Real-World Example: How Credit Affects Your Premium

Let’s say two drivers—Alex and Jamie—are both 35, live in the same city, drive the same car, and have clean driving records. The only difference? Alex has excellent credit (score of 780), while Jamie has poor credit (score of 580).

When they both apply for the same auto insurance policy, Alex might pay $1,200 per year. Jamie, however, could be quoted $1,800—50% more—for the exact same coverage. That’s a difference of $600 per year, or $3,000 over five years.

This isn’t an exaggeration. Multiple studies, including one by the Federal Trade Commission, have confirmed that credit can have a dramatic impact on insurance premiums. In some cases, the difference between the best and worst credit tiers can be more than double the cost of coverage.

Where Is Credit Used in Auto Insurance?

Not every state allows insurers to use credit when setting auto insurance rates. In fact, a handful of states have banned the practice entirely, citing concerns about fairness and discrimination.

As of 2024, the following states prohibit the use of credit in auto insurance pricing:

• California
• Hawaii
• Massachusetts
• Michigan

In these states, insurers cannot consider your credit history when determining your premium. This means your rates are based solely on factors like driving record, age, vehicle type, and location.

However, in the remaining 46 states, credit can legally be used—and most insurers do. Some states, like Washington and Oregon, have restrictions. For example, insurers may only use credit when you first apply for a policy, not during renewals.

It’s also worth noting that even in states where credit is allowed, insurers must follow certain rules. For instance, they can’t deny you coverage solely based on credit, and they must provide an explanation if your credit affects your premium.

Why the Discrepancy Between States?

The debate over using credit in insurance pricing centers on fairness. Critics argue that credit-based scoring disproportionately affects low-income individuals, minorities, and young people—groups that may have limited or damaged credit through no fault of their own. They say it creates a cycle where those who can least afford high premiums are charged the most.

Supporters, on the other hand, argue that credit is a reliable predictor of risk and helps keep overall premiums lower for responsible consumers. They point to data showing that people with poor credit file more claims, which drives up costs for everyone.

The result? A patchwork of state laws that reflect different philosophies about risk, fairness, and consumer protection.

How to Check If Your Insurer Uses Your Credit

If you’re not sure whether your current or potential insurer uses your credit, there are a few ways to find out.

First, read the fine print. When you apply for a policy, insurers typically ask for permission to pull your credit report. This is often buried in the terms and conditions or application form. Look for language like “credit-based insurance score” or “consumer report.”

Second, ask directly. Call the insurer’s customer service line and ask: “Do you use credit when setting auto insurance rates?” Most representatives will give you a straight answer.

Third, check your policy documents. If your credit was used, the insurer is required to disclose this. You may see a notice like: “Your premium was determined in part by information from your credit report.”

Finally, if you’re denied coverage or charged a higher rate due to credit, the insurer must send you an adverse action notice. This letter explains why your credit affected your policy and tells you how to get a free copy of the credit report they used.

What to Do If Your Credit Was Used Against You

Receiving an adverse action notice can be frustrating—but it’s also an opportunity. Here’s what you can do:

1. Request your credit report: You’re entitled to a free copy of the report the insurer used. Check it for errors, such as late payments that were actually on time or accounts that aren’t yours.
2. Dispute inaccuracies: If you find mistakes, file a dispute with the credit bureau. Correcting errors can improve your credit score over time.
3. Ask for a re-evaluation: Some insurers will re-run your credit after you’ve made improvements. It doesn’t hurt to ask.
4. Shop around: Not all insurers weigh credit the same way. Some companies are more lenient or don’t use credit at all. Getting quotes from multiple providers can help you find a better deal.

Can You Get Car Insurance With Bad Credit?

Yes—you can still get car insurance with bad credit. No state allows insurers to deny coverage solely based on credit (except in rare cases involving fraud). However, you may face higher premiums, fewer discounts, and fewer policy options.

The good news? There are steps you can take to improve your situation.

Tips for Drivers With Poor Credit

• Shop around: Some insurers specialize in high-risk or non-standard policies and may offer more competitive rates for people with poor credit.
• Improve your credit gradually: Pay bills on time, reduce credit card balances, and avoid opening new accounts unnecessarily.
• Consider a usage-based insurance program: Some companies offer discounts for safe driving, which can offset higher base rates due to credit.
• Maintain continuous coverage: A lapse in insurance can hurt your rates more than credit in some cases. Always keep your policy active.
• Ask about discounts: Many insurers offer discounts for things like bundling home and auto, paying in full, or having safety features in your car.

It’s also worth noting that some insurers don’t use credit at all—or weigh it very lightly. For example, companies like USAA (for military members) and some regional insurers may focus more on driving behavior than credit history.

Example: Finding Affordable Coverage With Bad Credit

Let’s say you have a credit score of 590 and need full coverage on a 2018 Honda Civic. You get quotes from five different insurers:

• Insurer A (uses credit heavily): $2,100/year
• Insurer B (moderate credit use): $1,700/year
• Insurer C (light credit use): $1,400/year
• Insurer D (no credit check): $1,300/year
• Insurer E (usage-based program): $1,200/year (with safe driving discount)

By shopping around, you could save $900 per year just by choosing the right insurer. That’s real money—enough to cover gas, maintenance, or even a vacation.

How to Improve Your Credit for Better Insurance Rates

If you’re serious about lowering your car insurance premiums, improving your credit is one of the most effective long-term strategies. Here’s how to get started:

1. Pay Your Bills on Time

Payment history is the most important factor in your credit score. Set up automatic payments or calendar reminders to avoid late fees and negative marks.

2. Reduce Your Credit Utilization

Try to keep your credit card balances below 30% of your credit limit—ideally under 10%. Paying down debt can have a quick positive impact on your score.

3. Don’t Close Old Accounts

The length of your credit history matters. Even if you don’t use an old credit card, keeping it open can help your score.

4. Limit New Credit Applications

Each time you apply for credit, a “hard inquiry” appears on your report and can lower your score slightly. Only apply when necessary.

5. Monitor Your Credit Report

You’re entitled to a free credit report from each of the three major bureaus (Equifax, Experian, TransUnion) once per year at AnnualCreditReport.com. Check for errors and signs of identity theft.

6. Consider a Secured Credit Card

If you’re rebuilding credit, a secured card—where you deposit money as collateral—can help you establish a positive payment history.

7. Be Patient

Credit improvement doesn’t happen overnight. But with consistent effort, you can see meaningful changes in 6 to 12 months.

The Future of Credit in Auto Insurance

As technology evolves, the role of credit in auto insurance may change. Some insurers are experimenting with telematics—devices or apps that track your driving behavior in real time. These programs measure things like speed, braking, and mileage, and reward safe drivers with discounts.

In the future, your driving habits could matter more than your credit score. Some companies already offer “behavior-based” pricing, where your premium is based on how you drive—not how you manage debt.

Additionally, there’s growing pressure from consumer advocates and lawmakers to limit or ban the use of credit in insurance. As awareness increases, more states may follow California and Michigan in prohibiting the practice.

For now, though, credit remains a powerful factor in determining your auto insurance rates. The best approach? Stay informed, shop smart, and take control of your financial health.

Conclusion

So, do car insurance companies check your credit? In most states—yes, they do. And while it might feel unfair, understanding how this system works can help you make better decisions and save money.

Your credit-based insurance score isn’t just a number—it’s a reflection of your financial habits, and it can have a real impact on your wallet. But you’re not stuck with high premiums forever. By improving your credit, shopping around, and taking advantage of discounts, you can find affordable coverage that fits your needs.

Remember: you have rights. Insurers must be transparent about how they use your credit, and you’re entitled to know when it affects your rates. Use that information to your advantage.

Whether you’re a new driver or a long-time policyholder, staying on top of your credit is one of the smartest things you can do—not just for your car insurance, but for your financial future as a whole.

Frequently Asked Questions

Do all car insurance companies check your credit?

No, not all insurers check your credit, but the vast majority do—especially when you’re applying for a new policy. Some companies, particularly those offering usage-based or non-standard policies, may place less emphasis on credit.

Will checking my credit for insurance hurt my score?

No. When insurers check your credit for insurance purposes, it’s considered a “soft inquiry” and does not affect your credit score. Only “hard inquiries” from loan or credit card applications can lower your score.

Can I be denied car insurance because of bad credit?

In most cases, no. Insurers cannot deny you coverage solely based on credit. However, they may charge you higher premiums or offer fewer discounts. In rare cases, extremely poor credit combined with other risk factors could limit your options.

How often do insurers check your credit?

Most insurers check your credit when you first apply for a policy and may re-check it at renewal. Some states limit how often this can happen, so it varies by location and company.

What if I have no credit history?

Having no credit history can make it harder to get a low rate, as insurers have less data to assess risk. Consider building credit with a secured card or becoming an authorized user on someone else’s account.

Can I improve my insurance rate by fixing my credit?

Yes. As your credit improves, your insurance score may also rise, leading to lower premiums over time. Some insurers will re-evaluate your rate if you request it after making credit improvements.