Many factors influence the cost of car insurance, and in most states, your credit-based insurance score is one of them. To help you understand how credit information could impact your rate, we’ll go over all things credit and car insurance. We’ll share tips to improve your credit score and discuss whether no credit check car insurance companies are a good idea.

Why Does Credit Score Affect Car Insurance?

Insurers rely in part on credit information to decide if they will provide coverage to potential customers and/or how much it should cost, according to the National Association of Insurance Commissioners (NAIC). Insurance companies look at a driver’s credit history to help develop a credit-based insurance score. This figure has been proven to be a key indicator as to how likely a driver is to have a loss and file a claim.

Important note: Some states prevent (or limit insurers) from using (or how they use) your credit history to influence your premium amounts.

How Does A Credit Score Affect Car Insurance?

The Washington D.C. Department of Insurance, Securities and Banking says companies might use the following five pieces of information from your credit report to help develop your insurance score:

Current debt
Payment history
The length of time your accounts have been open
New credit applications
Credit mix

So, while credit scores and insurance scores are not exactly the same, your credit score (or at least many of the factors that determine it) can play a role in determining your insurance score, meaning it’s important to try to keep your credit score up.

How To Get Your Credit Score

The Federal Trade Commission notes you can order a free copy of your credit reports every year from the three main credit bureaus at AnnualCreditReport.com. Getting a copy of your report can help you keep track of your score, look for any mistakes and spot potential identity theft.

Credit Ratings Vs. Credit Scores Vs. Credit-Based Insurance Scores

It’s important to understand common credit-related terms and learn the differences between them, and in this case, particularly credit rating, credit score and credit-based insurance score.

What’s the difference between a credit rating and a credit score?

A credit rating is a letter grade (like AAA, AA, A, BBB and so on) given to a business or government indicating how reliable of a borrower the entity is, according to Investopedia.

Although credit scores are similar to credit ratings in that they also represent a borrower’s reliability in paying back a loan, Investopedia notes that credit scores are typically used for individuals (and sometimes small businesses). These scoring models typically use a three-digit number, with FICO scores and VantageScores being the most well-known. In relation to insurance, it’s really your credit score, not a credit rating, that would play a role in determining your rate.

What’s a credit-based insurance score?

A credit-based insurance score (or auto insurance score) is a rating that insurance companies use along with other applicant information to help quote you a fair price for your policy. The NAIC says these insurance scores are partially based on pieces of someone’s credit history. However, the goal isn’t to determine the potential policyholder’s ability to repay a loan; they’re designed to predict how likely an individual is to have an insurance loss.

“Insurers argue that the use of credit-based insurance scores is necessary to properly evaluate risk and charge individual policyholders rates that most closely align with their true risk,” reports the NAIC.

How To Raise Your Credit Score

Because auto insurance scores are partially based on your credit history, cleaning up your credit report and boosting your credit score can help you secure a lower rate on car insurance coverage. If you have a low score, or just want to raise your score by a few points, try these tips from the Consumer Financial Protection Bureau.

Make on-time payments. Set up payment reminders on your phone's calendar or request they be sent to your email.
Don't borrow up to your credit limit. Maxing out your accounts can hurt your score. If you have a high balance, pay it down as quickly as possible.
Don't open new accounts. This could temporarily drop your credit rating. The same goes for closing multiple accounts at once.
Check your credit report regularly. Look at least once a year to make sure it doesn't have any errors on it. If you find errors, follow the reporting agency's instructions on how to correct them.
Be patient. If you’re making on-time payments and not borrowing too much, a long credit history can help boost your score.

Credit Checks Vs. No Credit Checks: Which Auto Insurance Companies Do Not Use Credit Reports?

Nearly all major auto insurance companies in most states use credit checks when determining rates. Outside of the handful of states that don’t allow credit to be a variable, “no credit check insurance” is rare.

A poor driving record and bad credit can make it more difficult to find cheap car insurance, so it might seem like a no credit check insurance company is the best option. But, purchasing a policy from one of these companies doesn’t necessarily mean you’re securing a lower rate.

It may be worth shopping and comparing quotes with both types of insurers to secure the best policy rate. You may find that some options, like Direct Auto, are more willing to work with you and help you find affordable coverage, even if you don’t have the greatest credit history.

Cheap Car Insurance for Bad Credit, Great Credit and Everything In Between

Some insurers are unwilling to work with drivers who have a poor credit history. But at Direct Auto, we’re here to help you find affordable car insurance whether you have a perfect credit score or no credit history at all. For more information or to get a free car insurance quote, visit one of our Direct Auto locations, get a free quote online, or call us at 1-877-GO-DIRECT.

Car Insurance And Credit Score FAQs

What credit score is considered “bad” for car insurance purposes?

Companies might categorize credit scores differently, but FICO considers scores “poor” if they’re under 580. How does that translate to insurance premiums, though? Well, on average, drivers with poor credit pay significantly more each year for full coverage than drivers who fall in other categories, according to Bankrate.

How does having no credit history affect my car insurance rates?

You can still find insurance coverage if you don’t have a credit history, according to MarketWatch. However, if an insurer can’t use your credit history to help determine a more accurate price, you might have to pay slightly more for coverage than someone with a solid, steady credit history.

Are there specific auto insurance companies that cater to drivers with bad credit?

Not all insurers are willing to work with drivers who have a poor credit history in their pursuit of affordable coverage. However, some providers are more willing to help. Direct Auto works hard to help all drivers find quality coverage at a price they can afford, regardless of their driving, insurance or credit history.

How long does it take for a credit score improvement to impact car insurance rates?

Poor credit scores don’t improve drastically overnight, so it’s important to be patient. Focus on making on-time payments and paying down any large balances as quickly as possible. Correct any errors on your credit report and don’t open new accounts. Your credit score should start to climb. When you are ready to renew your car insurance policy or shop around for a new policy, better credit could mean lower rates.

Can I negotiate car insurance rates if I have a bad credit score?

Generally speaking, you can’t negotiate car insurance rates (although you may be able to appeal to your insurer to reconsider your rate following an extraordinary life event like a death in your immediate family or a declared catastrophe). However, if you’re not getting the price you want due to a poor credit score, you can shop around to find more affordable insurance coverage.