What Is a Credit-Based Insurance Score?

Most drivers know that a speeding ticket or an at-fault accident will raise their insurance premium. Fewer realize that their credit history carries just as much — or more — weight with many insurers. Before diving into the costs, it's important to understand the tool insurers actually use: the credit-based insurance score (CBIS).

A CBIS is not the same as your FICO score or the credit score a bank pulls when you apply for a loan. Both are rooted in your credit report data, but they serve different purposes and are calculated using different formulas.

Factors like payment history, outstanding debt, length of credit history, and new inquiries all feed into a CBIS — but the weighting is tailored to predict insurance risk, not lending risk. Insurers argue that research consistently shows a strong correlation between how people manage their credit and how frequently they file insurance claims.

How Much More Does Bad Credit Cost You?

This is where the numbers get eye-opening. Drivers with poor credit pay significantly more for car insurance — in many cases, nearly twice as much as drivers with good or excellent credit.

Here's a breakdown of average annual cost differences by credit tier based on 2026 data:

On average, drivers with poor credit pay $1,421 more per year — or 109% more — than those with exceptional credit. Dropping just one credit tier typically increases your rate by around 17% or $355 per year.

The impact also varies dramatically by state:

• Nevada: Up to 199% more for poor-credit drivers
• Washington D.C.: Roughly 3x more expensive
• North Carolina: ~59% more
• Washington State: ~42% more (lowest impact among states that use credit)

Why Do Insurers Use Credit at All?

Insurers use credit-based insurance scores because statistical data shows that drivers with lower scores tend to file more claims and generate higher losses for insurance companies. The Insurance Information Institute and industry actuaries support this correlation. While critics argue the practice is unfair — especially to lower-income drivers — most states permit it as long as credit is just one factor among many (driving record, location, vehicle type, etc.) and not the sole determinant. Learn more about what affects car insurance rates beyond just your credit score.

States That Ban Credit-Based Insurance Pricing

If you live in one of the following states, good news: insurers cannot use your credit score to set your auto insurance rates. These states have enacted the strongest consumer protections in the country.

California prohibits insurers from considering credit history when underwriting or rating any auto policy. Hawaii bans the use of credit ratings in both underwriting standards and premium calculation. Massachusetts goes further, barring credit information from any stage of the policy — new applications, renewals, and rate-setting alike. Michigan prevents credit from being used to determine rates, deny coverage, cancel, or refuse to renew a policy.

If you live outside these states, your credit score very likely has a direct effect on your premium. Understanding how car insurance premiums are calculated in your state can help you advocate for yourself.

Finding Affordable Car Insurance with Bad Credit

Bad credit doesn't mean you're stuck paying sky-high rates forever. Here are the most effective strategies to bring your premium down today and over time.

1. Shop Around Aggressively

Rates for the same driver with the same credit profile can vary by hundreds of dollars per year depending on the insurer. Get quotes from at least three to five companies before committing. Some carriers are consistently more lenient with poor-credit drivers:

2. Enroll in a Usage-Based Insurance (UBI) Program

Telematics programs monitor your driving behavior — speed, braking, mileage, and time of day — and reward safe drivers with discounts of up to 25–40%, regardless of credit score. Top programs include:

• Progressive Snapshot
• State Farm Drive Safe & Save
• GEICO DriveEasy (up to 25% off + 15% sign-up discount)
• Nationwide SmartRide

This is one of the fastest ways to counter a bad credit penalty. If you're a safe, low-mileage driver, UBI can be a game-changer.

3. Stack Every Available Discount

Even with poor credit, discounts are available. Look for:

• Multi-policy/bundle discount (combining auto + renters or home)
• Good driver discount (clean record for 3–5 years)
• Paid-in-full discount (paying your premium upfront)
• Defensive driving course discount
• Low mileage discount

4. Raise Your Deductible

Choosing a higher deductible (e.g., $1,000 instead of $500) lowers your monthly premium. Just make sure you have the savings to cover it if you file a claim.

5. Work on Your Credit Score

Improving your credit is the single most impactful long-term strategy. Advancing just one credit tier can reduce your car insurance premium by an average of 54%. Here's how to start:

• Pay all bills on time — payment history is the biggest factor in both credit and insurance scores
• Keep credit utilization below 30% — ideally under 10% for the best results
• Check for and dispute errors on your credit report at AnnualCreditReport.com
• Avoid opening multiple new accounts — hard inquiries temporarily lower your score
• Don't close old accounts — credit history length matters

Results take time — typically 3 to 6 months for meaningful improvement — but the savings compound quickly. Check with your insurer about re-rating your policy at renewal once your credit improves. You can also explore related credit score car insurance tips to understand the full scope of the savings opportunity.

Frequently Asked Questions

Does every car insurance company check your credit?

In most states, yes. The vast majority of auto insurers use credit-based insurance scores as part of their underwriting and rating process. However, the weight given to credit varies significantly from company to company. In states like California, Hawaii, Massachusetts, and Michigan, insurers are legally prohibited from using credit in auto insurance pricing at all.

Is there such a thing as no-credit-check car insurance?

Not in the traditional sense. While some smaller or non-standard insurers advertise minimal credit checks, there is no nationally available auto insurance product that completely ignores credit in states where it's permitted. Your best option is to target carriers that place less emphasis on credit — like GEICO, COUNTRY Financial, or American Family — and to pursue usage-based insurance programs that reward driving behavior instead.

How long does it take for a better credit score to lower my insurance rates?

Credit improvement is gradual. You may see modest score gains in 1 to 2 months after changing habits like paying bills on time, but meaningful improvements typically take 3 to 6 months. Insurance rates are generally re-evaluated at renewal (every 6 or 12 months), so plan to request a re-quote from your insurer once you've made measurable progress on your credit.

Can a bad credit score cause my car insurance to be cancelled?

In most states, insurers cannot cancel an existing policy solely because of your credit score, though they may factor it in at renewal. In Michigan, the law is even stricter — insurers cannot use credit to cancel, non-renew, or deny coverage. That said, a very poor insurance score can affect the rates you're offered or the tier you're placed in at renewal, which may effectively make coverage unaffordable if you don't shop around.

What factors besides credit affect my car insurance rates?

Insurers weigh dozens of factors. The most impactful include your driving record (accidents, tickets, DUIs), your age and experience, your location (ZIP code), the type of vehicle you drive, and the coverage levels you select. A clean driving record can partially offset the impact of poor credit. Understanding how your credit score affects car insurance rates alongside these other factors gives you the full picture of what you're being charged — and where you have the most room to save.