The Connection Between Credit Scores and Insurance Premiums

4 November 2025

Let’s not sugarcoat it — your credit score doesn’t just haunt you when you’re applying for a loan or a new credit card. Nope. It digs its sneaky little claws into another unsuspected corner of your financial life: insurance premiums.

Wait, what? You mean the number that shows how well you pay your bills can affect what you pay for car or home insurance?

Oh yes, it absolutely can. And if this is news to you — buckle up. You’re about to find out how a three-digit number not only opens or closes doors to credit but also influences how much money you fork over every month for insurance. Sounds wild, right?

Let’s break it all down and connect the dots.

What’s the Deal with Credit Scores Anyway?

Before we dive headfirst into the juicy details, let’s pause for a moment.

What exactly is a credit score?

In plain English, it’s a number between 300 and 850 that tells lenders how good you are at borrowing and repaying money. Higher = better. Lower = riskier.

It’s based on several factors:

- Payment history (Did you pay your bills on time?)
- Credit utilization (How much of your available credit are you using?)
- Length of credit history (How long have you been building credit?)
- New credit (Have you been opening a lot of new accounts?)
- Credit mix (Do you use different types of credit – like cards, loans, etc.?)

Now, this makes sense when you want a mortgage or a new credit card. But insurance?

Let’s dive deeper.

Why Do Insurance Companies Even Care About Your Credit Score?

Here’s the kicker — insurance isn’t lending you money. So what gives?

Here’s the truth: insurance companies are in the business of assessing risk. They’re not loaning you cash — they’re betting on the likelihood that you’ll cost them money in the future.

And their studies (yes, they have the receipts) say that people with lower credit scores are statistically more likely to file insurance claims. More claims? Bigger payouts. Bigger payouts? Higher premiums.

So, naturally, insurance companies lean on your credit score to get a sense of how “risky” you are to insure.

Crazy, but it’s the cold, hard truth.

Enter: The Insurance Credit Score

Surprise twist — your credit score and your insurance credit score aren't exactly the same.

Wait, what?

Yup. Insurance companies use a different version of your credit data called an insurance-based credit score or credit-based insurance score. It pulls much of the same info from your credit report but crunches it differently.

Instead of predicting how likely you are to repay a debt, it predicts how likely you are to make a claim.

Think of it like two siblings. They’ve got the same DNA (your credit report), but they have different personalities (one looks at loans, the other looks at insurance claims).

What Kinds of Insurance are Affected?

So where will your credit score sneak into the picture?

Primarily in:

- Auto Insurance 🚗
- Homeowners Insurance 🏡
- Renters Insurance 🛋️
- Condo Insurance 🏙️

Yep — if it insures your stuff, credit probably plays a role.

Now, health insurance and life insurance? Not so much. Those operate in their own little bubble with different underwriting rules (thankfully).

Is This Even Legal?

Let’s get something straight — not everyone’s cool with this.

A lot of people think it’s unfair to tie credit (which can be impacted by all sorts of things like job loss, medical bills, or identity theft) to insurance costs.

Some states agree and have actually drawn the line:

States That Ban or Limit the Use of Credit Scores in Insurance Underwriting:

- California
- Hawaii
- Massachusetts
- Michigan (auto insurance only)
- Washington

Others have rules about how credit data can be used, but they haven't banned it altogether.

So depending on where you live, you may be totally immune — or subject to the full credit score microscope.

Real Talk: How Much Can It Actually Affect Your Premium?

Now we’re getting to the meat of it.

So you’re probably wondering — how big of a difference can a bad credit score make?

Brace yourself: it’s not pocket change.

According to studies:

- Drivers with poor credit pay up to 60% more for auto insurance than those with excellent credit.
- Homeowners with bad credit might pay twice as much for home insurance.

Yikes. That’s hundreds (or even thousands) of dollars down the drain every year… all because of a low score.

Let that sink in.

So What Can You Do About It?

Okay, now that you’re sufficiently fired up, let’s talk action. How do you dodge the higher premiums? Better yet — how do you lower them?

Here’s what you can do.

1. Know Where You Stand

You can’t fix what you don’t know.

Pull your credit report from all three major bureaus (Experian, Equifax, and TransUnion) for free at AnnualCreditReport.com. Check it thoroughly for errors.

Mistakes happen. And they can tank your score if you don’t correct them.

2. Improve Your Credit Score (Duh, Right?)

It’s not rocket science, but it does take consistency:
- Pay bills on time. Every time.
- Pay down your balances (ideally under 30% utilization).
- Don’t open or close accounts too quickly.
- Keep old accounts open (they help your credit age).
- Diversify your credit mix (if it makes sense for you).

Improving your score isn’t fast, but it’s worth it. Not just for insurance, but for everything tied to your financial life.

3. Shop Around Like Your Wallet Depends on It

Because it does.

Every insurance company weighs credit scores differently. Some might ding you hard, others might not care as much.

So don't settle for the first quote you get. Get at least 3 to 5 quotes, compare them, and don’t be afraid to switch.

Loyalty’s cool — but not if it costs you hundreds of extra dollars a year.

4. Ask for Discounts and Talk to an Agent

Seriously, just pick up the phone.

Ask your provider if you qualify for:
- Safe driver discounts
- Bundling home and auto
- Low mileage
- Good student (if you’ve got kids)
- Claims-free history

Credit score aside, you might find some hidden savings by simply asking.

5. Move (If You’ve Got That Flexibility)

Okay, this is the extreme option — but if you live in a state that penalizes you hard for credit, and you have the option to move to a state that bans it… it might be worth considering.

Especially if you’re paying hundreds more a month just because of your zip code + credit combo.

The Big Picture: It’s Not Just About Credit

Don’t get too tunnel-vision here.

Yes, your credit score matters. But so do other things:
- Age
- Driving history
- Type of vehicle or home
- Location
- Claims history

Insurance companies use a big cocktail of variables to set your rate. Credit is just a big, juicy ingredient in the mix.

So while you're working on your credit, don't ignore the rest of the recipe.

Final Thoughts: This Isn’t Fair — But It’s Real

Let’s face it — tying credit scores to insurance feels kind of shady. And you’re not alone if it rubs you the wrong way.

Should your ability to pay a credit card balance really matter when it comes to how much you pay for car insurance? Probably not. But in today’s system, it’s a factor. A big one.

So what do you do?

You play the game smarter.

Boost your score. Shop around. Know your rights. Be proactive instead of reactive.

Because like it or not, your credit score isn’t just following you around like a shadow — it’s actively picking your pocket every month if you’re not careful.

Don’t let it.