Credit-Based Insurance Scores: How Your Credit Raises Car and Home Premiums (and What You Can Do)
Your credit can cost you more on car and home insurance than a speeding ticket. Here is how insurance scores work, where they're banned and what you can do to pay less.
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📐 Verified Sep 28, 2026 against the Fair Credit Reporting Act (15 U.S.C. 1681b and 1681m), the CFPB's credit reports guidance and Bureau of Labor Statistics spending data. State rules are summarized from published state-by-state guides and change often, so confirm with your state insurance department. The worked example is illustrative. This is general information, not insurance advice. How we check numbers →
In most states, car and home insurers can use a credit-based insurance score, built from your credit report, to set your price. Weaker credit can raise premiums sharply; one analysis found drivers with poor credit pay about 69% more than drivers with good credit. A few states, including California, Hawaii and Massachusetts for auto, ban or limit the practice.
Numbers That Matter
| Rule or figure | What it says | Source | Verified |
|---|---|---|---|
| Insurers and credit reports | Federal law lets insurers obtain credit reports in connection with underwriting insurance | 15 U.S.C. 1681b (FCRA) | Sep 28, 2026 |
| If credit costs you | An adverse action notice is required when credit information leads to a worse rate or a denial | 15 U.S.C. 1681m (FCRA) | Sep 28, 2026 |
| Checking and fixing your reports | How to get your credit reports and dispute errors | CFPB | Sep 28, 2026 |
| What households spend on car insurance | About $1,993 a year in 2024 | BLS Consumer Expenditures | Sep 28, 2026 |
What a Credit-Based Insurance Score Is
It's a score built from the information in your credit report, such as payment history, how much you owe and how long you've had credit, designed to predict insurance claims rather than loan defaults. Insurers say it helps price risk; critics say it penalizes people for financial hardship. Either way, it's often one of the biggest factors in what you pay where it's allowed.
Where It's Banned or Limited
- Auto: California, Hawaii and Massachusetts ban using credit to set auto rates; Michigan and some other states restrict it.
- Homeowners: California, Massachusetts and Maryland ban or restrict it; Maryland also limits how auto insurers use credit at renewal.
- Elsewhere: several states limit using credit to raise rates at renewal, and lawmakers in more states have proposed bans.
These rules change and differ by line of coverage, so check your state insurance department's website for current details.
How to Lower the Credit Penalty
- Check your credit reports and dispute errors; a fix can change your insurance score.
- Pay on time and keep card balances low, the same habits that help your lending scores.
- Ask for a re-rate after your credit improves, instead of waiting for renewal.
- Ask about exceptions: many states let insurers reconsider for events like serious illness, divorce or job loss.
- Shop several insurers, because each weighs credit differently, and consider driving-behavior programs.
Worked Example: What Credit Can Cost a Driver
- With good credit: a $2,000 yearly premium.
- With poor credit: at the 69% gap one analysis found, about $3,380.
- The difference: about $1,380 a year, more than many drivers would save by raising deductibles or dropping coverage.
Gaps vary widely by state and insurer; this applies one published estimate to an example premium.
Decision Rules
If this, then that
- If your credit improved → ask for a re-rate or shop new quotes now.
- If you got an adverse action notice → check the credit report it names for errors.
- If hardship hurt your credit → ask about extraordinary-circumstance exceptions.
- If you live in a state that bans it → focus on your driving record and coverage choices instead.
- Always → compare several insurers; they don't weigh credit the same way.
Mistakes to avoid
- Assuming insurance prices depend only on your driving record.
- Ignoring errors on your credit report.
- Waiting for renewal after your credit improves.
- Staying with one insurer without comparing.
- Believing checking your own credit hurts your scores; it doesn't.
Related: the insurance re-shop playbook covers switching; credit freezes covers protecting your reports; rapid rescore and goodwill letters covers fixing credit; and the credit score needed for loans covers lending scores.