Most insurance companies look at your credit score when determining your car insurance
rates—making it harder to find affordable auto coverage with a poor credit score or incomplete credit history. Insurance companies in California, Hawaii, and Massachusetts are not allowed to use credit scores to determine car insurance rates. The good news is, that’s not the only factor insurance companies use when setting your rates
, and you’ll still be able to find providers that can cover you. But the more credit you build, the easier—and cheaper—your annual car insurance policy will get. MORE: The best car insurance for bad credit drivers
4.7/5 rating on the App Store | Trusted by 5+ million customers and 7 million cars4.7/5 app rating | Trusted by 5M+ drivers What does a credit score have to do with car insurance?
The answer is a lot, actually. Most auto insurance companies use their own algorithms to determine your annual and monthly rates. Factors like your demographic, driving history, and the type of car you drive all go into the formula—and, in many cases, so does your credit history.
Your credit score is one of the most commonly used metrics for determining rates among car insurance companies. Your credit report is one of the biggest ways for providers to predict risk.
Risk is expensive. Studies have shown a correlation between claims history and poor credit, particularly when it comes to submitting expensive insurance claims. Basically, a low credit score translates into greater risk—making it more likely that an insurance company will lose money by covering you.
In general, insurance providers want to incur as little risk as possible. That’s why having a low credit rating can result in seriously high auto insurance rates. On the flip side, drivers who have good credit or excellent credit pay the best rates—as little as half the price for car insurance as compared to drivers with poor credit.
Do all auto insurance companies check your credit?
No, not every auto insurance company checks your credit score. In fact, insurance companies in California
, Hawaii, and Massachusetts
are prohibited by state law from using credit scores to determine car insurance rates. But outside of those outliers, you’ll be hard-pressed to find a company that doesn’t consider credit scores, at least to some extent. And for many insurers, credit history is actually a leading determinant for rates—as it’s a strong indicator for whether policyholders should be considered “high-risk drivers
.” It’s always a good idea to go to a credit bureau like Experian or Equifax for a free credit report and assess your rate before you shop for auto insurance quotes. MORE: How does your credit score affect car insurance?
What happens if you have no credit history?
That answer depends on a few things. Having no credit history will make it harder to find car insurance in general—and you’re likely to face higher rates.
If you’re a teenage driver, this is especially true. Not only do teen drivers already face some of the highest insurance rates in general, but having a limited credit history on top of a scant driving history will only count against you.
Some companies may fill in the gaps by leveraging a fair credit score when calculating your rates, while others will assume the worst—and charge you accordingly. The good news is, making your car insurance payments on time, consistently, can help you build credit
over time, although it’s not a direct solution. That being said, the more credit you build, the more accurate (and hopefully cheaper) your insurance costs will become.
What other factors do insurance companies use to set your rate?
Credit history is a common variable in determining your insurance rates—but it’s not the only thing insurers look at.
As we’ve discussed, your age can also be a big predictor for the kind of rates you’re likely to see—with young drivers confronting especially high premiums. Most of the time, your rates start to decline once you turn 25—then increase again when you hit 65.
Where you live can also play a big role in the rates you see. Urban drivers often have to pay higher premiums as the result of higher population density and more traffic, which increase your risk of accidents, crimes, and other damage occurring.
Other common factors that insurance companies use to set your rate include:
Marital status. Policyholders who are married tend to receive lower rates, as they’re viewed by insurance companies as more experienced and financially stable drivers.
Driving history. Drivers with a clean driving record
pay less for car insurance, and can even earn extra discounts. Make/model you drive. Performance or luxury vehicles tend to cost more to insure, since the cost of parts and repairs for these kinds of cars are higher.
Safety features. Some companies offer discounts or adjust rates based on the extent of safety features present in a vehicle, such as the presence of driver assistance features or anti-theft devices.
Annual mileage. Drivers who drive more, pay more. More time on the road equals a higher chance of accidents. But drivers who keep their annual mileage low may qualify for added insurance discounts.
Discount eligibility. We’ve been mentioning discounts a lot, and for good reason! Qualifying for multiple car insurance discounts, like a good student discount or telematics discount, can effectively lower what you pay for car insurance.
Level of coverage. Purchasing your state’s minimum liability insurance coverage will usually be cheaper than investing in a full-coverage plan that includes collision
and comprehensive insurance
—but the trade-off is that minimum insurance is often inadequate.
MORE: How to bundle homeowners and auto insurance to save money
How to find affordable auto insurance with no credit history
If you’re looking for affordable insurance with low or incomplete credit, your options are pretty limited. One of the best things you can do is simply compare car insurance quotes online
from multiple insurance companies, and see which offer you the best deals. You may also want to consider looking into usage-based insurance programs, which set your rates based on your driving habits and mileage. “I recently started looking for insurance. With my past ticket, I got rejected from several companies while others charged me extreme prices. My friend referred me to Jerry
and their amazing customer service helped me get the lowest insurance rate.” —Christina H.
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