In many states, auto insurers are permitted to use a credit-based insurance score as one factor in determining your premium, alongside traditional factors like driving record and vehicle type. Many drivers are unaware this factor exists at all until they notice a rate difference that doesn't seem to align with their driving history.
How this differs from your standard credit score
A credit-based insurance score is a specialized score, distinct from the credit scores used for lending decisions, calculated using some similar underlying credit data but weighted specifically to predict insurance claim likelihood rather than loan default risk. Insurers and lenders may use different scoring models entirely, even though both draw from similar credit report information.
Statistical studies used by insurers have found correlations between credit-based insurance scores and claims frequency, which is the actuarial basis insurers cite for using this factor — though this practice remains a subject of ongoing debate and is prohibited or restricted in some states.
Which states restrict or prohibit this practice
Several states have prohibited or significantly restricted the use of credit-based insurance scores in auto insurance pricing, recognizing concerns about how this practice can affect certain groups of consumers. Checking your specific state's regulations clarifies whether this factor is even relevant to your situation.
How to address this factor if it applies to you
If your state permits this practice and you're concerned your credit-based insurance score might be affecting your premium unfavorably, the path forward is the same as improving your regular credit profile — managing credit utilization, making on-time payments, and addressing any errors on your credit report, since the credit-based insurance score draws on related underlying data.
- Check whether your state permits the use of credit-based insurance scores in auto insurance pricing
- Review your standard credit report for errors that could be affecting both your credit score and insurance score
- Practice generally sound credit habits, since this benefits your credit-based insurance score as well as your standard credit score
- Ask your insurer directly whether and how this factor is affecting your specific premium
Frequently asked questions
Can checking my own credit hurt my insurance score?
No, checking your own credit report or score is a soft inquiry and doesn't negatively affect either your standard credit score or any credit-based insurance score calculated from similar underlying data.
Does a thin credit history hurt my insurance score the same way it affects lending?
It can, since a limited credit history provides less data for either type of score to assess, potentially resulting in a less favorable insurance score classification until more credit history accumulates.