How Does My Credit History Affect Insurance Rates?

When applying for insurance, most people expect to provide personal and financial details—but many are surprised to learn that their credit history also plays a role in the rates they receive. So how does your credit history affect insurance rates, and why does it matter to insurance companies?

Understanding this connection can help you make better financial decisions, reduce your premiums, and ensure you’re getting fair treatment. In this article, we’ll explore how your credit affects your insurance, what insurers look for, and how you can improve your standing.

The Role of Credit-Based Insurance Scores

Insurance companies often use a special type of credit score known as a credit-based insurance score. While similar to your standard credit score, this version is tailored to predict the likelihood of filing insurance claims.

Key Differences Between Credit Scores and Insurance Scores

• Credit scores predict loan repayment behavior

• Insurance scores predict risk of claims or loss

Not all states allow the use of these scores, but in those that do, they can have a significant impact on your premiums—especially for auto and homeowners insurance.

How Insurers Use Credit Information

Insurance companies may evaluate several elements of your credit history, such as:

• Payment history

• Credit utilization ratio

• Length of credit history

• New credit inquiries

• Types of credit used

These data points are factored into your overall risk profile. The better your score, the more likely you are to receive lower rates.

Why Credit History Matters to Insurers

Studies show that individuals with higher credit-based insurance scores are less likely to file frequent or expensive claims. As a result, they’re considered less risky—and less costly—for insurers to cover.

Credit Score Tiers and Their Impact on Premiums

Premium differences can be significant depending on your credit category. According to industry data:

• Excellent credit: Up to 25% lower premiums

• Average credit: Standard rates

• Poor credit: Up to 60% higher premiums

This means a poor credit score can result in hundreds—or even thousands—more in annual insurance costs.

Types of Insurance Affected by Credit History

1. Auto Insurance

• One of the most common policies influenced by credit-based scores

• Drivers with poor credit may pay double compared to those with excellent credit

2. Homeowners Insurance

• Credit affects not only rates but also policy eligibility and payment plans

• Homes with owners in lower credit tiers may be subject to higher deductibles

3. Renters Insurance

• Although cheaper overall, premiums can still fluctuate based on credit standing

4. Life and Health Insurance

• Less commonly affected, but some providers may still review financial behavior during underwriting

States with Restrictions on Credit Use

Several states have limited or banned the use of credit scores in determining insurance rates:

• California

• Hawaii

• Massachusetts

• Michigan (for some products)

If you live in these states, insurers must rely on other risk factors to set your premium.

How to Improve Your Credit for Better Insurance Rates

1. Pay Bills on Time

• Your payment history is a major component of any credit evaluation

2. Reduce Credit Card Balances

• Keep credit utilization below 30% of your limit

3. Avoid Opening Multiple Accounts at Once

• Frequent hard inquiries can lower your score

4. Monitor Your Credit Reports

• Dispute any errors that may affect your profile

5. Maintain Long-Standing Accounts

• Length of credit history also contributes to a stronger insurance score

Improving these areas not only benefits your insurance rates but also strengthens your overall financial health.

How to Shop for Insurance with Credit in Mind

• Request quotes from multiple insurers

• Ask how your credit affects the rate

• Compare premium differences across credit tiers

• Use an independent broker for personalized options

• Bundle policies for possible savings

Even if you currently have poor credit, some insurers place less weight on scores—or exclude them entirely.

Final Thoughts

So, how does your credit history affect insurance rates? The connection is stronger than most people think. Your credit behavior can significantly influence how much you pay for coverage, especially for auto and homeowners policies.