Your Credit and Your Insurance Bill: How Premiums Are Set
Quick answer: In most states, auto and home insurers use a credit-based insurance score built from your credit report to predict claims. Late payments and high card balances can raise your premium. California, Hawaii and Massachusetts do not allow it for auto insurance.↗ Share on X
In most U.S. states, insurance companies can use information from your credit report to help set what you pay for auto and home insurance. They do not use the same credit score a lender sees. They use a different number called a credit-based insurance score. It looks at how you handle debt — late payments, how much of your credit you use, how long you have had accounts — and insurers use it to predict how likely you are to file a claim. A weaker score can mean a higher premium, sometimes by a lot. A few states, including California, Hawaii, and Massachusetts, do not allow this for auto insurance.
Below you will learn what goes into this score, what it does not include, how much it can matter, and what you can do about it.
What is a credit-based insurance score?
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Why a Higher Deductible Barely Lowers Your Car Insurance →A credit-based insurance score is a number built from the information in your credit report. Companies that create these scores, along with the insurers themselves, use formulas that look at your credit history and give it a rating.
The important difference:
- A regular credit score tries to predict whether you will repay a loan.
- A credit-based insurance score tries to predict whether you will file insurance claims, and how costly they may be.
Both scores use the same raw data from the credit bureaus (Equifax, Experian, and TransUnion), but they weigh it differently. That is why you can have a decent credit score and still not get the best insurance rate, or the other way around.
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What parts of your credit history affect your premium?
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Insurers do not all use the same formula, and most do not publish the details. But the factors usually come from these areas:
| Credit factor | What it means in plain words | How it tends to affect your insurance score |
|---|---|---|
| Payment history | Do you pay bills on time? | Late payments and collections usually lower it |
| Amount owed | How much of your available credit you are using | Using a large share of your limits usually lowers it |
| Length of credit history | How long you have had credit accounts | A longer history usually helps |
| New credit | How many new accounts you opened recently | Many new accounts in a short time can lower it |
| Types of credit | A mix of cards, car loans, mortgage, etc. | A healthy mix may help a little |
| Public records | Bankruptcies and some legal judgments | These usually lower it significantly |
What information is not allowed in the score?
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12 Hidden Things That Raise Your Car Insurance (Not Driving) →Federal and state rules limit what can be used. In general, credit-based insurance scores do not include:
- Your income
- Your race, color, religion, or national origin
- Your gender or marital status
- Your age
- Your address (though your address can affect your rate in other ways)
- Whether you receive public assistance
Also, when an insurer checks your credit to give you a quote, it is usually a soft inquiry. A soft inquiry does not lower your regular credit score. You can shop for insurance quotes without hurting your credit.
How much can your credit change what you pay?
It depends on your state, the insurer, and the type of policy. In states that allow it, credit can be one of the bigger rating factors for auto and home insurance, next to things like your driving record, where you live, and the car or house itself.
Here is a simple way to think about it, without made-up numbers:
1. Two drivers with the same car, same zip code, and same clean driving record ask for a quote.
2. One has a long history of on-time payments and low card balances.
3. The other has several recent late payments and maxed-out cards.
4. In many states, the second driver will be quoted a noticeably higher premium, even though neither has had an accident.
The only way to know your own impact is to compare quotes from several insurers. Each one weighs credit differently.
Does your credit affect life and health insurance too?
The rules are different for each type of insurance:
- Auto insurance: credit is commonly used, except in states that ban or limit it.
- Homeowners and renters insurance: credit is commonly used in many states, with some state limits.
- Life insurance: some insurers look at credit information as part of the approval process, especially for larger policies. Rules vary, and many insurers focus more on your health and lifestyle.
- Health insurance: under the Affordable Care Act, plans sold to individuals cannot set your premium based on your credit. They can only consider a few factors, such as age, location, tobacco use, and how many people are on the plan.
If you are unsure what your insurer uses, ask directly: "Do you use credit information to set my rate, and how?"
What are your rights if credit raises your premium?
Under the federal Fair Credit Reporting Act, if an insurer takes an "adverse action" based on your credit report — for example, charging you more or denying coverage — it must tell you. That notice should explain that credit played a role and tell you which credit bureau supplied the report.
You then have the right to:
1. Get a free copy of your credit report from that bureau.
2. Dispute any errors you find in the report.
3. Ask the insurer to re-rate your policy once the errors are fixed.
Many states also give extra protections. For example, some states require insurers to make exceptions if your credit was damaged by a major life event, such as a serious illness, the death of a spouse, divorce, job loss, or identity theft. Ask your insurer or your state insurance department whether this applies where you live.
How can you lower your premium if your credit is hurting it?
You cannot change your credit history overnight. But there are steps you can take now and over the next months.
Steps you can take this week
1. Check your credit reports for free. Go to AnnualCreditReport.com, the official site for free reports from all three bureaus.
2. Look for mistakes. Wrong late payments, accounts that are not yours, or old debts listed twice are common. Dispute them with the bureau.
3. Shop around. Get quotes from at least three insurers. Each one uses its own formula, so the difference between them can be large.
4. Ask about discounts. Bundling auto and home, paying in full, safe-driver programs, and good-student discounts can offset part of a higher rate.
Steps that help over the next 6 to 12 months
1. Pay every bill on time. Set up automatic minimum payments so you never miss one.
2. Lower your card balances. Try to keep the amount you use well below your credit limit on each card.
3. Avoid opening many new accounts at once.
4. Keep old accounts open if they have no annual fee. They add to the length of your history.
5. Ask for a re-rate at renewal. If your credit improves, ask your insurer to check it again. Some will not do it automatically.
Should you raise your deductible to save money?
A deductible is the amount you pay out of your own pocket before insurance starts paying. Raising it usually lowers your premium. But only do this if you truly have that money saved.
| Deductible | Premium | Risk for you |
|---|---|---|
| Low (for example, $250) | Higher | You pay little when something happens |
| Medium (for example, $500 to $1,000) | Medium | A balance for many families |
| High (for example, $2,000 or more) | Lower | You need savings ready to cover it |
If a high deductible would force you to put a repair on a credit card, you may end up hurting your credit and your insurance score at the same time. Choose a deductible you can pay from savings.
When should you get help from a professional?
Consider talking to someone if:
- You were denied coverage and do not understand why.
- You found errors on your credit report and the bureau will not fix them.
- A life event, like a medical crisis or job loss, damaged your credit and your premium jumped.
Good places to start:
- Your state insurance department. Every state has one. They handle complaints and can explain your state's rules on credit and insurance.
- An independent insurance agent. Unlike an agent tied to one company, an independent agent can compare several insurers for you.
- A nonprofit credit counselor. Look for one accredited by a national counseling organization. They can help you make a plan to improve your credit.
Your next step
Today, go to AnnualCreditReport.com and download your free reports from all three bureaus. Spend 20 minutes checking them for mistakes. Then, before your next policy renewal, get quotes from at least three insurers and ask each one how they use credit information. Those two actions — fixing errors and comparing quotes — are the fastest ways to stop paying more than you should.
FAQ
Does getting an insurance quote hurt my credit score?
Usually not. Insurers typically use a soft inquiry, which does not lower your regular credit score.
Can health insurance use my credit score?
Individual health plans under the Affordable Care Act cannot set premiums based on credit. They can only use factors like age, location, tobacco use and household size.
What can I do if bad credit raised my premium?
Get your free reports at AnnualCreditReport.com, dispute errors, compare quotes from several insurers, and ask for a re-rate after your credit improves. Your state insurance department can explain local rules.
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Educational content, not personalized financial advice. Sources cited where applicable.