Laura Berry is a former State Farm insurance producer and insurance expert.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 18, 2021

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Here's what you need to know...

  • In most states, car insurance companies can access your credit report and use it to determine your insurance premiums.
  • About 95 percent of car insurance companies will use a credit score when determining a price for your car insurance premium,
  • Improving your credit score can help improve your credit-based insurance score.
  • There are several other factors that will be used to determine what your auto insurance rates are besides your credit report and score, such as driving history, age, gender, and where you live.

Protecting your identity and credit score are extremely important. With all that has happened in recent years regarding identity theft, as well as the weight that your credit score holds, knowing who is looking at your credit and why is vital. If you have recently received a rate increase on your car insurance policy or do not understand why your policy premiums are so high, the answer could potentially lie in your credit score and report. To find out if you are paying the lowest premium possible, be sure to use an online comparison tool for auto insurance premiums. Compare car insurance rates now by using our FREE tool above!

Behind the Scenes

You have typed in or verbally given to a customer service representative all of your demographics, your important information, and likely even your social security number. Now you anxiously wait to see what premium quote you will receive. While you may not think about it, there is an awful lot going on behind the scenes at this point. The car insurance company you are requesting a quote with is looking at many different factors, which will likely include portions of your credit report, as well as other important pieces of information in order to determine your premiums.

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Can a Car Insurance Company Legally Check My Credit?

While it may come as quite a shock to many drivers, in most states, car insurance companies do have a legal right to pull credit reports on drivers who request a quote or purchase a premium from them. You can find out if it is legal in your state by clicking here.
According to FICO, one of the major companies contracted to create credit-based insurance scores, approximately 95 percent of all car insurance companies in the United States and 85 percent of companies who sell homeowners insurance will use a credit-based scoring system, in states where it is legal when determining premiums for their consumers. This helps their underwriters to determine the risk they are taking when they underwrite your policy.

The bigger the risk, the higher the premium the driver will likely pay.

Statistics show that people with poor or not very good credit are more likely to file car insurance claims, costing their car insurance company more money in the long run.

What Matters in My Credit Report to Auto Insurance Companies?

When credit-based scoring is used by an auto insurer, there are several different pieces of the credit report that are taken into consideration, such as:

  • Payment History- Your history of making on-time and other payments will be a factor in your policy premium. In fact, they account for about 40 percent of your credit-based insurance score.
  • Current Owed Debt- Over two-thirds of your credit-based insurance score will be weighted upon any outstanding debt that you currently owe.
  • Credit History Length- Your length of credit history will account for approximately 15 percent of your total credit-based insurance score. Additionally, a bankruptcy can also impact your score negatively.
  • New Inquiries- Another 10 percent of your score will be based on the number of new credit inquiries you have had that will show if you have recently been applying for new credit lines of any type.
  • Types of Credit- Lastly, another 5 percent of your credit-based score will be weighted upon the various types of credit you already have, for instance, car loans, mortgages, student loans, personal loans, and credit cards.

Will Improving My Credit Help?

As many people already know, improving your credit score and credit report can take time. However, over time, you can work to improve what is in your credit report, thus improving your credit-based insurance score. You can do this by:

  • Making on-time payments
  • Paying off debts
  • Making sure your credit report has no errors
  • Not taking on any new debt or even allow additional inquiries into your credit report

On the other hand, utilizing a credit-based insurance score can also be beneficial to consumers, depending on their situation and history. If you are someone who has good or excellent credit, this can help you get better rates than if your insurance company did not use a credit-based insurance score.

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What Other Factors Determine My Auto Insurance Premium?

To the relief of some people, there are several other factors used to determine the rate you will pay for your auto insurance. Other information that is considered includes:

  • Driving Record- If you have had serious accidents or traffic offenses, you will pay more for your car insurance premiums. In addition, if you have a shorter driving history or have not been insured for many years.
  • How Much You Drive Your Car- If you drive your car a short distance to work or simply have it for pleasure use, you will pay less than someone who drives long distances each day.
  • Previous Claim History- Auto insurance companies will also look into your claims history to determine their risk when underwriting your auto policy. Many claims, or several claims in a short timespan, can increase your rate.
  • Your Age and Gender- Younger people will generally pay more for their auto policies as car insurance companies assume inexperience with younger age. In addition, males typically pay more than females as they are deemed to be more likely to take risks when driving. Men are also more likely to have a DUI conviction than women.
  • Where You Live and Where You Park- You will pay more for an auto insurance premium in some places throughout the country simply due to the fact that cars are more likely to be stolen, vandalized, or be involved in an accident. In addition, if your car is parked inside of a garage, you will likely have a smaller premium as your car is more protected than if it were parked on the street or in a carport.

Although it can seem like an unnecessary invasion of privacy, in most states auto insurance companies can look into your credit report and utilize it to help determine the premium you will pay. However, they also combine this knowledge with other information. If you are finding your car insurance premiums difficult to afford due to poor credit, or any other reason, utilize an online comparison auto insurance shopping tool. Using a comparison tool can help you be sure you are receiving the best rate possible, no matter what is in your credit report or your past driving history. Compare car insurance rates now by entering your zip code in our FREE tool below!