Car insurance quotes and credit history are connected, but not how you might expect.
There’s no “hard credit pull” for auto insurance quotes. That means that your credit score won’t be temporarily lowered when you shop for insurance the way it is when you apply for credit.
While insurance companies do consider your credit history when setting rates in most states, they don’t check the same information lenders and credit card issuers do. Instead, they use credit-based insurance scores based on similar information from your credit report.
The credit-based insurance score
Credit-based insurance scores are intended to predict how likely you are to file a claim. They’re calculated from factors in your credit report, such as:
- How recently you have applied for credit, such as a loan or credit card (not insurance).
- Your history of making payments on time.
- The portion of your credit card limits you actually use, expressed as a percentage.
- The number, types and ages of loan and credit accounts you have.
- The amount of debt you have.
- Whether you have accounts in collections, or past foreclosures and/or bankruptcies.
Credit-based insurance scores are intended to predict how likely you are to file a claim.
Traditional credit scores, such as FICO scores and VantageScores, use similar information to estimate how likely you are to pay your bills on time. When you apply for credit or loans, card issuers and lenders use traditional credit scores to determine credit limits, interest rates and loan terms.
Since filing claims and paying bills on time are two different financial behaviors, the two types of scores are determined using formulas that weight the information in your credit report differently. Insurers also use separate insurance-based scores for home and auto insurance.
Car insurance quotes and your credit score
In any case, there won’t be a hard inquiry when you apply for coverage.
Insurers often ask for the approximate credit tier of your regular credit score when you get a quote — except in California, Hawaii and Massachusetts, where the use of credit to set rates is banned. You’re not expected to know your credit-based insurance score — most people don’t — so this is just a way to get your auto insurance quote quickly. In this scenario, the company uses your reported credit tier to estimate your insurance premium before you’ve agreed to buy a policy.
Once you apply for coverage, you’ll authorize the insurer to obtain your credit information and other information that can affect your final price. So, if you give the wrong tier, your auto insurance quote won’t be accurate. Alternatively, some insurers or agents may ask for your authorization to view credit information during the insurance quote process so that the price estimate is more reliable. In either case, it won’t be considered a hard credit inquiry.
» MORE: What is a car insurance quote?
The premium you pay for poor credit
NerdWallet analyzed rates for 40-year-old male and female drivers with clean driving records in both the “poor” and “good” credit tiers as reported to an insurer as you would while getting an auto insurance quote. On average, those in the poor credit group paid 77% more in premiums than those with credit in the good tier. Here’s the breakdown by state.
| State | Average annual rate for drivers with good credit | Average annual rate for drivers with poor credit |
|---|---|---|
| Alabama | $1,468 | $2,673 |
| Alaska | $1,282 | $2,054 |
| Arizona | $1,549 | $2,888 |
| Arkansas | $1,386 | $2,361 |
| California | $1,817 | $1,817 |
| Colorado | $2,065 | $3,705 |
| Connecticut | $2,039 | $3,482 |
| Delaware | $2,444 | $4,706 |
| District of Columbia | $1,698 | $3,117 |
| Florida | $2,411 | $4,403 |
| Georgia | $1,921 | $3,132 |
| Hawaii | $1,312 | $1,312 |
| Idaho | $990 | $1,770 |
| Illinois | $1,439 | $2,548 |
| Indiana | $1,142 | $2,012 |
| Iowa | $1,013 | $1,544 |
| Kansas | $1,538 | $2,415 |
| Kentucky | $2,007 | $4,052 |
| Louisiana | $3,678 | $6,308 |
| Maine | $897 | $1,483 |
| Maryland | $1,971 | $3,191 |
| Massachusetts | $1,270 | $1,270 |
| Michigan | $4,079 | $10,437 |
| Minnesota | $1,673 | $3,484 |
| Mississippi | $1,478 | $2,461 |
| Missouri | $1,521 | $3,225 |
| Montana | $1,277 | $2,149 |
| Nebraska | $1,127 | $1,908 |
| Nevada | $2,414 | $4,687 |
| New Hampshire | $1,125 | $1,937 |
| New Jersey | $2,173 | $4,159 |
| New Mexico | $1,570 | $2,562 |
| New York | $2,647 | $5,509 |
| North Carolina | $978 | $1,652 |
| North Dakota | $1,241 | $2,240 |
| Ohio | $1,123 | $1,945 |
| Oklahoma | $1,596 | $2,655 |
| Oregon | $1,758 | $3,300 |
| Pennsylvania | $1,298 | $2,345 |
| Rhode Island | $2,159 | $3,475 |
| South Carolina | $1,322 | $2,359 |
| South Dakota | $1,155 | $1,913 |
| Tennessee | $1,445 | $2,582 |
| Texas | $1,934 | $3,110 |
| Utah | $1,400 | $2,706 |
| Vermont | $1,082 | $2,104 |
| Virginia | $1,139 | $1,774 |
| Washington | $1,029 | $1,800 |
| West Virginia | $1,490 | $2,721 |
| Wisconsin | $1,044 | $1,766 |
| Wyoming | $1,128 | $1,608 |
» MORE: How much is car insurance in 2019?
Why insurance companies care about your credit history
Insurance scores were introduced in the 1990s by FICO, a data analytics company best known for credit scores. FICO estimates that 95% of auto insurers and 85% of home insurers use insurance scores to set premiums in states where the practice is permitted. The scores were found to accurately predict risk, or likelihood of filing a claim, by the Federal Trade Commission, according to a 2007 report.
In most states, insurance scores can be used because companies need only correlate poor insurance scores with more frequent or costlier claims. Typically, in states where the practice is permitted, scores can be used to set rates, but not as the sole reason for increasing premiums or denying or cancelling coverage.
