What to Know About a Credit-Based Insurance Score

A low credit-based insurance score can affect your car insurance rates more than a DUI, in some cases.

Kayda NormanOctober 29, 2020
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You have a flawless driving record, never had a gap in coverage and you’re the only one on your policy. Yet your car insurance rates still are higher than all your utility bills combined. One possible culprit? Having poor credit, or, more specifically, a low credit-based insurance score.

What is a credit-based insurance score?

Your credit-based insurance score, or insurance credit score, is used to determine how likely you are to file a claim. It gives insurers an idea of how big of a risk you are to cover, and helps them decide how much to charge you for coverage.

These credit based-insurance scoring models, created by data analytics companies like LexisNexis and FICO, have proven to be fairly accurate. A 2003 study from the University of Texas showed drivers with the worst insurance scores are twice as likely to file an insurance claim when compared with drivers with the best scores, according to TransUnion.

Surprisingly, in some cases, poor credit can increase your car insurance rates more than a recent DUI. In fact, rates for drivers with poor credit are 75% higher, on average, than for people with good credit, according to NerdWallet’s 2020 rate analysis.

Besides auto, a credit-based insurance score can be used to determine other types of coverage such as home and renters. Generally, however, you’ll get a separate score for each insurance type, although some companies, like LexisNexis, offer scores that can be used across multiple lines of insurance.

While using credit-based insurance scores to calculate rates is legal on the federal level, insurance companies typically aren't allowed to use credit history as the sole reason for increasing rates or denying or canceling a policy. Four states — California, Hawaii, Massachusetts and Michigan — have banned insurers from using credit scores to set rates.

Credit-based insurance score vs. regular credit score

Your insurance credit score isn't the same as the more commonly known VantageScore or FICO credit score that’s used when you apply for a mortgage, credit card or auto loan. However, the factors used to determine your score are the same, just weighted differently. That’s because a credit score is meant to estimate the likelihood you’ll pay your debts, while the credit-based insurance score looks at how likely it is you'll file an insurance claim.

Because more than one company can issue a credit-based insurance score, your rating may differ from company to company. Regardless of the company, the higher your score, the better.

Factors that are used to create a credit-based insurance score are similar for both LexisNexis and FICO but may differ when it comes to weighting. For example, below is a breakdown of how FICO weighs insurance credit scores, according to the National Association of Insurance Commissioners (NAIC):

  • Payment history (40%): How you made payments on your debt in the past, including frequency and the amount paid off.

  • Outstanding debt (30%)*: Amount of debt you have.

  • Credit history length (15%): Amount of time you have had a line of credit.

  • Pursuit of new credit (10%): Looks at if you have recently applied for new lines of credit.

  • Credit mix (5%): The kinds of credit you have, including credit card, mortgage or auto loans.

Based on the categories above, the following could negatively impact your insurance credit score:

  • Missing payments.

  • Having little to no credit history.

  • Too many hard credit inquiries. (A hard credit pull occurs when you apply for an auto, student or personal loan, mortgage or credit card.)

  • High credit card balances as compared with your credit limit, known as your credit utilization.

Like a regular credit score, personal information cannot be used to determine your credit-based insurance score, including:

  • Gender.

  • Race.

  • Marital status.

  • Religion.

  • Age.

  • Income and occupation.

  • Location of residence.

Although your credit score and credit-based insurance score aren't the same, your credit score can be a good indicator of your credit-based insurance score. If you have a decent credit score, your credit-based insurance score is likely (but not always) on par.

*FICO declined to elaborate on whether this includes credit utilization only or all debt. 

What’s a 'good' insurance credit score?

It’s hard to say what a "good" credit-based insurance score is because each company can decide what score it defines as "good."

For instance, one insurance company might decide a score of 750 or better unlocks the lowest car insurance rates, while another might instead require a score of 700 or better to receive its best price. And because scores come from different credit-reporting companies, those numbers won’t always be measured on the same scale.

To give you an idea of the ranges, LexisNexis offers credit-based insurance scores through credit bureau Experian from 200 to 997. Here is an example of scores and rankings from the LexisNexis website:

  • Good: 776-997.

  • Average: 626-775.

  • Below average: 501-625.

  • Less desirable: Under 500.

TransUnion’s website states that a "good" score is around 770 or higher.

Average car insurance rates for poor credit

Although insurers differ on what is a "poor" insurance credit score, using the example above, 625 and lower would be considered poor credit.

Average car insurance rates for a driver with poor credit are:

  • $2,506 per year for full coverage.

  • $1,078 per year for minimum coverage.

Comparatively, the average car insurance rates for a good driver with good credit are $1,080 less per year for full coverage and $471 less per year for minimum coverage.

Do all auto insurers use credit-based insurance scores?

The use of credit to determine insurance rates has come under scrutiny for several reasons. Critics say it's unfair to price auto insurance based on credit score since it cannot predict a driver's accident risk. There is also a general lack of awareness about the use of credit-based insurance scores to set insurance rates, and consumer advocates have pushed back on the use of credit information to set rates.

Some companies are starting to forgo credit checks. Root Insurance has pledged to remove credit scores from its pricing model by 2025, while drivers in Texas can get a no-credit-check car insurance quote from Dillo.

Still, approximately 95% of auto insurers use an insurance credit score to determine car insurance rates, according to FICO, so depending on where you live, you might have no choice. But that doesn't mean you’re stuck with the rate you’re paying now. Shopping around for car insurance quotes can help you find lower rates, even if you have poor credit.

What company has the best rates for good drivers with poor credit?

Out of the seven largest auto insurers in the U.S., Geico, on average, has the best rates for good drivers with poor credit. (Our "good driver" profile is a 40-year-old with no moving violations and credit in the "good" tier.)

These rates are for full coverage policies, which include liability, comprehensive, collision, uninsured/underinsured motorist protection and any additional state-mandated coverage.

Here are the annual car insurance rates for good drivers with good and poor credit, averaged across all states:

Company

Good credit

Poor credit

Annual difference

$1,834

$2,907

$1,073

$1,865

$3,227

$1,362

$1,198

$1,748

$550

$1,778

$2,497

$719

$1,766

$3,238

$1,472

$1,511

$3,114

$1,603

$1,023

$1,925

$903

*USAA is available only to active military, veterans and their families.

Car insurance rates for drivers with poor credit by state

State

Good credit

Poor credit

Annual difference

$1,401

$2,525

$1,125

$1,180

$1,753

$573

$1,409

$3,037

$1,627

$1,427

$2,445

$1,017

$1,627

$1,627

$0

$1,570

$2,799

$1,229

$1,683

$3,436

$1,752

$1,559

$2,873

$1,314

$2,352

$4,267

$1,915

$1,594

$2,566

$972

$1,176

$1,176

$0

$937

$1,599

$662

$1,163

$2,022

$859

$994

$1,742

$748

$997

$1,737

$740

$1,306

$2,218

$912

$2,161

$3,827

$1,665

$2,971

$4,958

$1,987

$916

$1,905

$989

$1,595

$2,678

$1,083

$1,299

$1,299

$0

$2,331

$5,513

$3,182

$1,280

$2,539

$1,259

$1,385

$2,182

$797

$1,339

$2,480

$1,141

$1,252

$2,098

$846

$1,181

$1,968

$787

$1,881

$3,074

$1,193

$1,056

$2,162

$1,106

$1,759

$3,686

$1,927

$1,241

$2,006

$766

$1,962

$4,233

$2,271

$1,075

$1,425

$349

$1,235

$2,295

$1,060

$1,051

$1,797

$746

$1,595

$2,725

$1,130

$1,228

$2,115

$888

$1,167

$2,034

$866

$1,684

$2,915

$1,231

$1,458

$2,984

$1,526

$1,245

$2,144

$899

$1,170

$2,267

$1,097

$1,471

$2,616

$1,145

$1,248

$2,507

$1,259

$993

$1,705

$712

$960

$1,547

$587

$1,261

$2,261

$1,001

$1,527

$2,756

$1,229

$1,307

$2,392

$1,085

$1,005

$1,809

$804

$1,184

$1,863

$679

How to build your credit and get cheaper insurance

Here are a few tips to build credit:

Pay your bills on time. Having a history of on-time payments is one of the best ways to improve credit.

Pay off your credit card debts. Do your best to pay off any credit card debt as soon as you can without going over budget.

Pay down credit card balances. There are times when you might have to use your credit card to pay for essentials. Still, try your best to keep your balances as low as possible — NerdWallet recommends staying under 10% of your total credit limit.

Limit hard credit inquiries. Hard credit pulls, like those used to determine if you qualify for a loan or credit card, may temporarily lower your credit scores. Try to leave at least six months between applications.

Find out your credit-based insurance score. Contact the company that created your score to find out why you received it. While it’s not as easy to obtain your credit-based insurance score as your other credit scores, it’s still possible. Some insurers will provide contact information to find out more about your score, especially if your car insurance rate was affected by your credit.

Get a copy of your credit report. If you’re having trouble finding your credit-based insurance score, get a copy of your credit report. The Fair Credit Reporting Act allows you to obtain a free credit report every 12 months from three consumer credit reporting companies: Experian, Equifax and TransUnion. During the pandemic, consumers are able to get a free credit report every week through April 2021. NerdWallet can provide your free TransUnion credit report; get your Experian and Equifax report at AnnualCreditReport.com.

Your report includes your:

  • Identification data.

  • Payment record.

  • Accounts opened.

  • Age of accounts.

  • Recent hard credit inquiries.

  • Medical debt and revolving credit.

  • Balances.

  • Credit limits.

  • Personal details such as your job and address.

You can use this data to see what factors might be affecting your credit score. Because credit-based insurance scores and credit scores use the same information in different proportions, any of these actions will affect both scores:

Ask to be added as an authorized user. If you’re close with someone who has a lightly used, established credit card account, preferably with a generous credit limit, ask them to add you as an authorized user. Being added to their card may help build your credit.

Know your rights. State laws differ in regard to using credit to set insurance rates. Contact your state’s department of insurance to find out the rules.

Other ways to save on car insurance if you have poor credit

Improving your insurance credit score will likely lower your insurance rates if you have poor credit, but there are also other ways to find savings.

Shop around. Compare car insurance rates to find the cheapest auto insurer. You may be able to find a better price than you’re paying now, even if you have poor credit. This is because every company weighs factors differently. Although one company may raise your rate by 10% for poor credit, another might raise it by 5%.

Having poor credit affects insurance rates, but shopping around won’t have an impact on your credit score because there’s no hard credit pull when you compare car insurance quotes.

Your insurance credit score is especially important when you’re getting a policy with a company for the first time. When you’re a new customer, most companies will check your score to help calculate car insurance rates. However, after your initial policy, companies vary on when they check your score, says P.J. Smith, senior director of product management at LexisNexis Risk Solutions.

Some auto insurers look at your credit-based insurance score every time you renew your policy, while others will check it only occasionally. How often your insurance credit score needs to be checked also depends on state regulations.

This means you can’t assume you’re getting the best rate just because your credit improved. Shop around to make sure you’re getting the cheapest price. Young adults, immigrants new to the country and anyone who doesn’t have a credit history can especially benefit from comparing car insurance rates.

Usage-based insurance. If you’re a good driver, you might get cheaper car insurance rates by using usage-based insurance. Usage-based policies still use factors like location and age, but driving behavior is also considered to determine your car insurance rate. Driving habits like speeding and hard braking are generally gathered through a plug-in device or a smartphone app. Root specializes in usage-based insurance, and some traditional insurers like Progressive also offer this option.

Pay-per-mile insurance. Unlike traditional insurance, premiums for this type of policy depend on how many miles you drive each month. This is usually calculated by a plug-in device or smartphone app. If you work from home or don’t drive a lot, this could cost less than traditional insurance. Some companies, like Metromile, specialize in this type of insurance, while a few large insurers, such as Nationwide, also offer a per-mile option.

Request a LexisNexis report. Your insurance credit score is only one factor used to determine your car insurance rate. Driving record and insurance history also play a big part.

Insurers get your driving and insurance history from your Comprehensive Loss Underwriting Exchange, or CLUE auto report. CLUE is a collection of data LexisNexis sells to auto insurers to help them approve clients and set premiums. You can request a full file disclosure for free on its website, which includes copies of several reports that LexisNexis compiles about you such as your CLUE auto and property reports. (Here’s an example of what your CLUE auto report might look like and some tips on how to read it.)

Methodology

NerdWallet averaged rates for 40-year-old men and women for all ZIP codes in any of the 50 states and Washington, D.C., in which the insurer was one of the largest insurance companies (by premiums written). “Good drivers” had no moving violations on record and an insurance credit score considered “good” by each insurer; a “good driving” discount was included for this profile. Sample drivers had the following coverage limits:

  • $100,000 bodily injury liability coverage per person.

  • $300,000 bodily injury liability coverage per crash.

  • $50,000 property damage liability coverage per crash.

  • $100,000 uninsured motorist bodily injury coverage per person.

  • $300,000 uninsured motorist bodily injury coverage per crash.

  • Collision coverage with $1,000 deductible.

  • Comprehensive coverage with $1,000 deductible.

In states where required, minimum additional coverages were added. We used the same assumptions for all other driver profiles, with the following exceptions:

  • For drivers with minimum coverage, we adjusted the numbers above to reflect only the minimum coverage required by law in the state.

  • We changed the credit tier from “good” to “poor” as reported to the insurer to see rates for drivers with poor credit.

We used a 2016 Toyota Camry LE in all cases and assumed 12,000 annual miles driven. In all cases, a paperless discount, e-signature discount and electronic funds transfer discount were automatically applied. These are sample rates generated through Quadrant Information Services. Your own rates will be different.

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