How to improve your credit score to lower car insurance rates

Boost your credit score to lower car insurance rates. Discover how credit scores affect insurance premiums by state. Learn practical tips on improving your credit for better insurance costs and more financial benefits.

How to improve your credit score to lower car insurance rates

You might already know that your driving record and claims history can affect your car insurance premiums, but did you know that your credit score can too? 

Since its introduction in 1989, the FICO score has grown in influence. It affects consumers’ lives far beyond credit. Companies use credit scores to decide how much to lend you, whether you qualify for a job or an apartment, and, yes, how much you should pay for auto insurance. 

If you’re paying too much for car insurance, could your credit score be the culprit? Read on for more information about how your credit score affects your insurance premiums and how to improve it. 

How does a poor credit score affect car insurance rates? 

In most states, insurance companies use your credit score as part of an actuarial tool called a credit-based insurance score. In other words, your credit score is part of the data they use to predict how many claims you’re likely to file as their customer. When evaluating your credit-based insurance score, they include factors like: 

  • The amount of debt you have 
  • Your credit history 
  • Your “credit mix” (how many types of credit you have, like car loans and credit cards) 
  • Your payment history 
  • Recent hard credit checks (more on those in a bit) 

Insurance companies have observed a link between better financial situations and fewer insurance claims. They see customers with lower credit-based insurance scores as riskier, and thus more costly, to insure. So, they charge those customers higher rates. 

How much does your credit rating affect insurance rates?

How much more car insurance companies charge based on credit score depends on many factors. Insurance can cost 33 to 110 percent more for customers with bad credit. The state you live in makes a big difference, too. Some states let insurers significantly hike rates for customers with low credit scores, while others outlaw the practice entirely. 

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Car insurance rates by credit score in your state 

The extent to which your credit score affects your insurance rates depends on where you buy your insurance. In some states, your credit won’t affect your car insurance premiums at all. California, Hawai’i, Massachusetts, and Michigan ban car insurance companies from using credit scores to set their rates. In other states, like Wisconsin and Utah, having a low credit score could more than double your premiums. 

Here's the average car insurance rate increase for a low credit score by state: 

  • Alabama: 75%  
  • Alaska: 58% 
  • Arizona: 81% 
  • Arkansas: 110% 
  • California: 0% 
  • Colorado: 76% 
  • Connecticut: 72% 
  • Delaware: 83% 
  • Florida: 42% 
  • Georgia: 62% 
  • Hawai’i: 0% 
  • Idaho: 86% 
  • Illinois: 88% 
  • Indiana: 73% 
  • Iowa: 83% 
  • Kansas: 75% 
  • Kentucky: 73% 
  • Louisiana: 97% 
  • Maine: 95% 
  • Maryland: 72% 
  • Massachusetts: 0% 
  • Michigan: 0% 
  • Minnesota: 90% 
  • Mississippi: 84% 
  • Missouri: 61% 
  • Montana: 66% 
  • Nebraska: 108% 
  • Nevada: 55% 
  • New Hampshire: 86% 
  • New Jersey: 82% 
  • New Mexico: 54% 
  • New York: 33% 
  • North Carolina: 44% 
  • North Dakota: 85% 
  • Ohio: 78% 
  • Oklahoma: 66% 
  • Oregon: 73% 
  • Pennsylvania: 56% 
  • Rhode Island: 96% 
  • South Carolina: 83% 
  • South Dakota: 109% 
  • Tennessee: 97% 
  • Texas: 59% 
  • Utah: 104% 
  • Vermont: 86% 
  • Virginia: 75% 
  • Washington: 47% 
  • West Virginia: 73% 
  • Wisconsin: 105% 
  • Wyoming: 39% 

How to improve your credit score

Getting a better insurance rate is just one of many reasons it pays to improve your credit score. A higher credit score can also help you qualify for lower interest rates and fees on loans, make landlords more likely to approve your credit applications, and land you higher credit limits and better credit card perks. 

Here are the top things you can do to raise your credit score.

Stay on top of payments 

Paying your bills on time is the top thing credit bureaus look at when setting your credit score. In fact, your payment history makes up 35 percent of your credit score! A late payment can stay on your credit report for seven years, so paying on time has lasting benefits. Some tactics to stay on top of payments and avoid getting dinged for late payments include: 

  • Scheduling bill reminders in your calendar, planner, or phone 
  • Setting up automatic payments for recurring bills like loan payments and credit card balances 
  • Making up any late payments as soon as possible 
  • Contacting a creditor and negotiating to temporarily lower your monthly payments or remove missed payments once you’ve paid them off 

Lower your revolving balances

Your credit utilization ratio is worth 30 percent of your credit score, so lowering it can make a significant difference. Your credit utilization ratio is the percentage of your available credit that you’re using. For example, if you have one credit card with a credit line of $1,000 and you carry a balance of $500, your credit utilization is 50 percent. 

Experts recommend maintaining a credit utilization ratio of 30 percent or less. Paying down your credit card balances improves your credit utilization. Prioritize paying down revolving balances. Not only will it help your credit score, but these balances have some of the highest interest rates of any debt, so you’ll save more money in the long run. 

Limit hard credit checks

Certain types of credit checks, also called credit inquiries, can lower your credit score. There are two kinds of inquiries – soft checks and hard checks. 

Soft checks, which happen when someone requests your credit report for information only, don’t affect your credit score. You downloading your own credit report is a soft check. So is an insurance company pulling your credit report to price a quote, or a landlord checking your credit as part of your lease application. 

Hard checks, though, do affect your credit score. Hard checks are when someone requests your credit report to help them decide whether to give you a line of credit. When you apply for a new credit card or credit line increase, ask your bank for a mortgage, or try to get a loan for a new car, the company you’re applying with will check your credit report. Because hard credit checks indicate that you’re trying to get more credit, they increase your perceived lending risk to credit reporting agencies. So, hard checks reduce your credit score. Their effect lasts for about a year. If your credit score isn’t looking so hot right now, it might be wise to avoid hard credit checks until your score improves. 

If you improve your credit score, does that automatically improve your car insurance rate? 

Improving your credit score takes discipline and a lot of patience. Before you start, you probably want to make sure that it’s worth the effort. 

So, does improving your credit score automatically lower your car insurance premiums? Not exactly. Insurers typically check their customers’ credit scores when they sell a policy to a new customer, or, for existing customers, at renewal every three years. You don't have to wait to save, money, though!

Once you’ve raised your credit score, call your insurance provider and ask them to reorder your credit report. Once your insurer has your new credit score, they should lower your rates. It's also worth shopping around and getting a few competitor quotes. You may find that with a better credit score, a different insurer is a better fit for you.

You can put the money you save on insurance back into improving your credit score…or buy yourself a treat! 

How else can I lower my car insurance rates? 

Building up your credit score is always a good idea, especially since it can lower your car insurance costs. But depending on your debt and income, it can take a long time to make a significant change. In the meantime, you still have bills to pay.  

Surround Insurance can’t make your credit score improve faster, but we can help you find other ways to save on car insurance while you’re working on it. Contact us for help finding and comparing multiple quotes from different insurance companies – one of the best and quickest ways to score a lower premium.

This is general information based on questions our customers ask us. It may not be right for your specific situation. You should get some advice from a licensed insurance agent (like us!) before you make a decision on your own insurance.