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On This Page
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- Does your credit tier impact your car insurance premium?
- Why does your credit score affect car insurance rates?
- How credit score impacts insurance premiums by state
- What can I do to improve my credit score?
- Frequently asked questions
- Methodology
Understanding the influence of credit scores on car insurance premiums is essential, as it often plays a significant role in determining rates. Referencing 2024 rate data from Quadrant Information Services, individuals with excellent credit typically see annual rates of around $2,200 for full coverage car insurance. Conversely, those with less favorable credit histories could face rates as high as $4,801 — an average of 118 percent more. This correlation underscores the importance of maintaining good credit to potentially secure more favorable insurance costs. Bankrate provides insights to navigate the complexities of how credit scores affect car insurance rates, aiming to guide you toward optimizing your premiums.
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What to know first
- On average, drivers with poor credit pay 118 percent more for full coverage car insurance than those with excellent credit.
- California, Hawaii, Massachusetts and Michigan prohibit or limit the use of credit as a rating factor in determining auto insurance rates.
- Drivers with poor credit in New York pay the highest average rate for full coverage car insurance at $8,812 per year.
Does your credit tier impact your car insurance premium?
Your credit score can influence your car insurance rates in most states, where your financial track record can significantly affect your premiums. The rationale behind this practice is supported by actuarial research, which suggests a correlation between one's credit management and the likelihood of filing an insurance claim. Insurance companies often view a lower car insurance credit score as an indicator of increased risk, which may lead to higher premiums for those with less favorable credit histories. This approach reflects the insurance industry's use of credit-based scores to gauge potential claim risks.
National average annual full coverage premium by credit rating
| Poor credit | Average credit | Good credit | Excellent credit |
|---|---|---|---|
| $4,801 | $2,769 | $2,542 | $2,200 |
Why does your credit score affect car insurance rates?
When evaluating your credit history, insurance companies use what is called a credit-based insurance score. This score evaluates particular aspects of a consumer’s credit history to determine how likely they may be to have an insurance loss. While each insurer has its own proprietary underwriting system for calculating an insurance-based credit score, common factors that usually factor into this score 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.
How credit score impacts insurance premiums by state
The impact of a credit score on insurance premiums can differ widely across states, as most jurisdictions permit insurers to factor in credit history when determining rates. This practice, combined with variables such as local traffic conditions, weather patterns, population density and the overall cost of living, contributes to the fluctuating nature of rates from one state to another.
The table below provides a snapshot of how these rates for full coverage policies vary by credit tier across various states, including Washington, D.C. It's noteworthy that states like California, Hawaii, Massachusetts and Michigan have regulations that limit or outright prohibit the use of credit scores in setting average car insurance premiums.
Annual full coverage premium by state and credit rating
| Poor | Average | Good | Excellent | |
|---|---|---|---|---|
| Alabama | $3,841 | $2,375 | $2,191 | $1,927 |
| Alaska | $3,888 | $2,519 | $2,330 | $2,023 |
| Arizona | $5,779 | $2,813 | $2,556 | $2,191 |
| Arkansas | $3,866 | $2,377 | $2,186 | $1,944 |
| California* | $2,700 | $2,700 | $2,701 | $2,700 |
| Colorado | $4,749 | $2,846 | $2,605 | $2,122 |
| Connecticut | $3,946 | $2,572 | $2,122 | $1,610 |
| Delaware | $4,246 | $2,847 | $2,613 | $2,245 |
| Florida | $8,578 | $4,443 | $3,941 | $3,199 |
| Georgia | $4,385 | $2,816 | $2,609 | $2,271 |
| Hawaii* | $1,655 | $1,656 | $1,655 | $1,655 |
| Idaho | $2,081 | $1,493 | $1,416 | $1,280 |
| Illinois | $3,963 | $2,480 | $2,303 | $1,961 |
| Indiana | $3,013 | $1,785 | $1,630 | $1,363 |
| Iowa | $3,316 | $1,867 | $1,680 | $1,418 |
| Kansas | $5,061 | $2,873 | $2,619 | $2,205 |
| Kentucky | $5,061 | $2,822 | $2,540 | $2,139 |
| Louisiana | $7,094 | $3,970 | $3,609 | $3,016 |
| Maine | $2,842 | $1,637 | $1,497 | $1,291 |
| Maryland | $4,524 | $2,727 | $2,491 | $2,150 |
| Massachusetts* | $1,682 | $1,682 | $1,683 | $1,682 |
| Michigan* | $7,015 | $3,749 | $3,336 | $2,684 |
| Minnesota | $4,287 | $2,212 | $1,982 | $1,679 |
| Mississippi | $3,890 | $2,267 | $2,049 | $1,766 |
| Missouri | $5,706 | $3,421 | $3,164 | $2,614 |
| Montana | $3,942 | $2,395 | $2,235 | $1,906 |
| Nebraska | $3,785 | $2,183 | $1,984 | $1,685 |
| Nevada | $5,415 | $3,745 | $3,535 | $3,084 |
| New Hampshire | $3,342 | $1,801 | $1,625 | $1,322 |
| New Jersey | $5,361 | $2,970 | $2,547 | $1,909 |
| New Mexico | $4,218 | $2,381 | $2,204 | $1,866 |
| New York | $8,812 | $4,269 | $3,833 | $3,127 |
| North Carolina | $2,220 | $1,774 | $1,708 | $1,647 |
| North Dakota | $3,301 | $1,824 | $1,619 | $1,324 |
| Ohio | $2,867 | $1,639 | $1,498 | $1,244 |
| Oklahoma | $4,628 | $2,782 | $2,536 | $2,172 |
| Oregon | $3,289 | $2,020 | $1,846 | $1,609 |
| Pennsylvania | $4,172 | $2,965 | $2,790 | $2,443 |
| Rhode Island | $4,691 | $3,058 | $2,682 | $2,341 |
| South Carolina | $3,463 | $2,041 | $1,872 | $1,516 |
| South Dakota | $4,083 | $2,160 | $1,946 | $1,604 |
| Tennessee | $3,462 | $2,023 | $1,806 | $1,498 |
| Texas | $5,010 | $2,943 | $2,613 | $2,291 |
| Utah | $3,326 | $2,083 | $1,916 | $1,636 |
| Vermont | $2,349 | $1,457 | $1,347 | $1,183 |
| Virginia | $3,747 | $2,161 | $1,960 | $1,606 |
| Washington | $1,899 | $1,664 | $1,613 | $1,530 |
| Washington, D.C. | $6,377 | $2,822 | $2,430 | $2,032 |
| West Virginia | $3,602 | $2,057 | $1,858 | $1,549 |
| Wisconsin | $3,091 | $1,906 | $1,726 | $1,451 |
| Wyoming | $2,484 | $1,685 | $1,582 | $1,340 |
*These states prohibit or limit the use of credit as a rating factor.
What can I do to improve my credit score?
Enhancing your credit score is a vital aspect of managing your financial health effectively. Achieving a higher credit score could potentially unlock benefits such as loan approvals, more favorable interest rates and increased credit limits. For those whose credit scores are less than ideal, there are strategies that might assist in gradual improvement. The journey to build and boost your credit score can be time-consuming, but it's often worth the effort, especially since it could lead to reduced premiums on your car insurance. Should conventional insurance providers offer rates that don't align with your budget, investigating options from insurers that don't require a credit check might be worthwhile, provided such alternatives exist in your region. The steps outlined below are designed to guide you in enhancing your credit score.
Pay your bills on time
Timely payment of your bills plays a crucial role in shaping your credit-based insurance score. A pattern of late payments or credit delinquencies might signal to insurers a potential risk in financial management, possibly indicating a higher likelihood of claim submissions for minor damages. By making it a habit to settle your bills on or before their due dates, you could positively impact your credit and, consequently, your insurance scores.
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
Keeping a close eye on your credit score can be advantageous for multiple reasons. Being aware of your score enables you to take proactive measures toward improvement. Furthermore, routine checks of your credit reports can uncover errors or signs of identity theft early on. Spotting something amiss allows you to challenge and rectify any inaccuracies promptly.
Maintain old lines of credit
Maintaining long-standing credit accounts can be beneficial for your credit score, including the portion that influences your insurance rates. The duration of your credit history can contribute significantly to your score, accounting for 15 to 20 percent. Rather than closing an unused credit card, consider utilizing it sparingly and ensuring payments are made on time. This approach can help in fortifying your credit history and minimizing your credit utilization ratio, which is described below.
Be aware of your credit utilization ratio
In addition to the number of lines of credit you have, your credit utilization ratio will also impact your credit rating. Your credit utilization ratio is a measurement of how much credit you have available compared to how much you use. Although there is no set rule of how much of your credit you should be using, many finance professionals recommend that you utilize no more than 30 percent of your total available credit at any given time. If you are using more than 30 percent of your available credit, paying off some of your debt to bring your credit utilization score down may help improve your credit score and, in turn, your credit-based insurance score.
Frequently asked questions
Methodology
Bankrate utilizes Quadrant Information Services to analyze 2024 rates for ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:
- $100,000 bodily injury liability per person
- $300,000 bodily injury liability per accident
- $50,000 property damage liability per accident
- $100,000 uninsured motorist bodily injury per person
- $300,000 uninsured motorist bodily injury per accident
- $500 collision deductible
- $500 comprehensive deductible
To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2022 Toyota Camry, commute five days a week and drive 12,000 miles annually.
These are sample rates and should only be used for comparative purposes.
Credit-based insurance scores: Rates were calculated based on the following insurance credit tiers assigned to our drivers: “poor, average, good (base) and excellent.” Insurance credit tiers factor in your official credit scores but are not dependent on that variable alone. Four states prohibit or limit the use of credit as a rating factor in determining auto insurance rates: California, Hawaii, Massachusetts and Michigan.
Written by
Ashlyn Brooks
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Ashlyn Brooks is a finance writer with more than half a decade of experience, known for her knowledge in areas such as taxes, insurance, investing, retirement, finance news, and banking products.
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