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Drivers with poor credit pay twice as much for car insurance — even if their driving record is spotless

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By Susan Meyer Info icon
Updated September 16, 2024
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Susan Meyer

Senior Editorial Manager

Susan is a licensed insurance agent and has worked as a writer and editor for over 10 years across a number of industries. She has worked at The Zebr…

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  • Licensed Insurance Agent — Property and Casualty
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Beth Swanson

SEO Content Strategist

Beth joined The Zebra in 2022 as an Associate Content Strategist. She is a licensed insurance agent whose goal is to make insurance content easy to r…

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  • Licensed Insurance Agent — Property and Casualty
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  1. Key Finding 1
  2. Key Finding 2
  3. Key Finding 3
  4. Key Finding 4
  5. Key Finding 5

Find affordable car insurance options for drivers at all credit tiers.

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Credit and car insurance

How does your credit score affect the price of your car insurance rates? How does that vary by state?

Most consumers know that credit plays a big role in their finances, whether they’re applying for a credit card or considering a car or home loan.

What most consumers don’t realize is that, in nearly every state, credit also has a huge impact on what they pay for car insurance. In fact, dropping just one credit tier can increase a driver’s car insurance premium an average of 17% or $355 per year.

If this sounds concerning, you’re not alone. Several states (California, Maryland, Michigan, Massachusetts and Hawaii) ban or limit insurers' use of credit in car insurance pricing.[1] Other states have certain circumstances where credit can be used (Utah, Nevada, Oregon, Washington, North Carolina), but many state legislatures continue to debate the use of credit.[2] It's ultimately up to the state to decide how and when this information can be applied to insurance, so we suggest checking your state's Department of Insurance website for specific details.

Just how big a credit's impact on insurance rates varies by insurer and location. Here, we review the impacts in each state and share what consumers can do to ensure they’re getting the best rate.

If your credit drops just one level, your car insurance premium can jump 17% or more.

Key Findings

1. Drivers with poor credit pay twice as much for car insurance as those with exceptional credit

2. Most drivers are unaware that credit affects their car insurance rates

3. Data: How credit impacts drivers in every state

4. Drivers can save 17% (or $355) when they improve their credit score by one tier

5. Why credit in car insurance pricing is so controversial

Key Finding 1

U.S. Drivers With Poor Credit Pay Twice as Much for Car Insurance as Those With Exceptional Credit

The Zebra’s analysis of 61 million car insurance rates shows that drivers with poor credit (those with a credit score lower than 580) pay about $2,729 per year for car insurance. Drivers with exceptional credit (those with a credit score of 800 or higher) pay $1,308 — less than half as much. In other words, drivers with poor credit pay $1,421 more — or 109% more — each year than drivers who have exceptional credit — even if they have the exact same driving record.

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Key Finding 2

Most Drivers Are Unaware That Credit Impacts Their Car Insurance Rates

As many as 95% of auto insurers use credit information to price policies (in states where it’s legally permitted), and the financial impact for consumers can add up to hundreds or even thousands of dollars per year.[3] 

Yet, consumers are often confused (or completely in the dark) about its impacts.
Only 41% of drivers surveyed by The Zebra were aware that their credit rating could change what they pay for car insurance. A closer look shows that even among the most informed demographic — drivers age 55+ — less than half (47%) knew about credit’s impacts. 

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Key Finding 3

How Credit Impacts Drivers in Every State

Just how big of an impact credit has on your car insurance rate depends on where you live.

In Nevada, for example, a driver with poor credit may pay 199% (or $3,100+) more for car insurance than an identical driver who has exceptional credit.

Meanwhile in North Carolina, a driver with poor credit may pay 59% (or $530) more than an identical driver who has exceptional credit.

Credit has the biggest impact on rates in Nevada, Michigan, Kentucky, Missouri, and Alabama. (Editor’s Note: Michigan lawmakers approved legislation in May 2019 to prohibit credit scores in auto insurance rating.)

Insurance rate differences based on credit score (by state)
State Poor (300-579) Average (580-669) Good (670-739) Excellent (740-799) Exceptional (800-850) % Difference  Exceptional to Poor
Alabama $3,058 $2,369 $1,874 $1,485 $1,141 168%
Alaska $2,069 $1,743 $1,479 $1,239 $1,082 91%
Arizona $2,673 $2,103 $1,669 $1,357 $1,125 138%
Arkansas $2,750 $2,345 $1,907 $1,585 $1,319 108%
California $1,815 $1,815 $1,815 $1,815 $1,815 N/A
Colorado $3,320 $2,692 $2,199 $1,791 $1,464 127%
Connecticut $2,770 $2,285 $1,946 $1,603 $1,380 101%
Delaware $3,510 $2,875 $2,343 $1,919 $1,582 122%
Washington, D.C. $3,292 $2,600 $1,973 $1,569 $1,374 140%
Florida $3,979 $3,246 $2,640 $2,159 $1,806 120%
Georgia $2,762 $2,204 $1,867 $1,597 $1,395 98%
Hawaii $1,081 $1,081 $1,081 $1,081 $1,081 N/A
Idaho $1,942 $1,586 $1,291 $1,066 $892 118%
Illinois $2,321 $1,865 $1,526 $1,274 $1,083 114%
Indiana $2,086 $1,758 $1,447 $1,202 $1,036 101%
Iowa $1,655 $1,385 $1,178 $1,024 $893 85%
Kansas $2,667 $2,228 $1,848 $1,551 $1,308 104%
Kentucky $4,592 $3,792 $2,569 $2,021 $1,646 179%
Louisiana $4,300 $3,517 $2,949 $2,472 $2,022 113%
Maine $1,512 $1,262 $1,087 $934 $813 86%
Maryland $2,356 $2,029 $1,652 $1,380 $1,213 94%
Massachusetts $1,277 $1,277 $1,277 $1,277 $1,277 N/A
Michigan $6,841 $4,928 $3,861 $2,927 $2,297 198%
Minnesota $2,653 $2,122 $1,644 $1,354 $1,104 140%
Mississippi $2,847 $2,372 $1,982 $1,603 $1,340 112%
Missouri $3,282 $2,536 $1,937 $1,506 $1,201 173%
Montana $2,538 $1,997 $1,686 $1,443 $1,174 116%
Nebraska $2,287 $1,902 $1,577 $1,334 $1,128 103%
Nevada $4,706 $3,484 $2,658 $2,052 $1,572 199%
New Hampshire $1,966 $1,665 $1,409 $1,157 $958 105%
New Jersey $3,136 $2,574 $2,163 $1,769 $1,442 117%
New Mexico $2,398 $1,982 $1,658 $1,401 $1,195 101%
New York $3,391 $2,683 $2,154 $1,769 $1,521 123%
North Carolina $1,427 $1,272 $1,101 $964 $897 59%
North Dakota $2,479 $2,067 $1,666 $1,386 $1,138 118%
Ohio $1,934 $1,581 $1,323 $1,091 $887 118%
Oklahoma $2,633 $2,249 $1,904 $1,622 $1,403 88%
Oregon $2,672 $2,177 $1,766 $1,465 $1,230 117%
Pennsylvania $2,611 $2,182 $1,786 $1,466 $1,219 114%
Rhode Island $3,970 $3,313 $2,714 $2,229 $1,789 122%
South Carolina $2,841 $2,213 $1,729 $1,428 $1,219 133%
South Dakota $2,483 $2,014 $1,654 $1,394 $1,180 110%
Tennessee $2,999 $2,391 $1,905 $1,508 $1,221 146%
Texas $3,100 $2,643 $2,217 $1,886 $1,660 87%
Utah $2,514 $2,004 $1,584 $1,281 $1,011 149%
Vermont $2,280 $1,821 $1,427 $1,137 $935 144%
Virginia $1,637 $1,354 $1,131 $961 $845 94%
Washington $2,300 $1,874 $1,534 $1,264 $1,023 125%
West Virginia $2,510 $2,110 $1,775 $1,483 $1,253 100%
Wisconsin $1,947 $1,613 $1,337 $1,116 $934 108%
Wyoming $1,974 $1,746 $1,581 $1,419 $1,239 59%
Key Finding 4

Drivers Can Save 17% (or $355) When They Improve Their Credit Score by Just One Tier

Just like drivers can reduce their insurance rates by driving responsibly and staying accident-free, they can save money by improving their credit rating.  

How? Insurers generally give the most consideration to a driver’s payment history, outstanding debt, credit history length, pursuit of new lines of credit, and credit mix.
 
If you’re a driver who has poor credit

If your low-to-average credit rating is driving up your insurance rates, you stand to benefit the most from improving your credit, even by a little bit. Drivers who improve their credit rating just one tier save $355 or 17% per year on average, but those going from a poor credit rating to an average credit rating save about $489 or 18% per year.

If you’re a safe driver with poor credit, you may be able to lower your insurance rate by exploring telematics- and usage-based auto insurance, which determines your premium based on how you drive.

If you’re a driver who has good credit

If you have good credit and you live in a state that allows credit-based insurance pricing, you’re in luck. 

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Savings Tip: Insurers may not automatically update your information when your credit rating improves. You may get a better deal by comparing insurance quotes to find the best price. (Remember, not all insurers take credit into consideration.)

Key Finding 5

Why Is Credit So Controversial?

Though insurers have been using certain credit information in insurance pricing since the 1990s, it remains controversial.

Consumer advocates and lawmakers have often raised concerns that credit-based pricing could unfairly penalize good drivers who suffered a financial setback or economic disadvantages. There have even been ongoing efforts to prohibit insurers from considering credit in pricing both nationally and in several states. 

However, most states still allow insurers to take credit information into account (alongside many other factors) when setting rates. That’s because insurers can show statistics indicating that drivers with poor credit are more likely to file claims (costing the insurer money) than those with good credit. Industry representatives often argue that credit helps them accurately price rates, which benefits consumers. They say that prohibiting the use of credit in insurance pricing could mean lower-risk consumers paying more to subsidize higher-risk consumers. 

How do consumers feel about it? About 40% of drivers surveyed by The Zebra thought it was unfair for insurers to adjust a driver’s car insurance pricing based on their credit. 

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Have more questions?

Check out our guide to insurance companies that do not use credit scores for more information on which companies to explore with poor credit. 

Methodology

The Zebra’s 2020 State of Auto Insurance Report analyzed 61 million unique rates to explore pricing trends across all United States zip codes including Washington, DC. Analysis used a consistent base profile for the insured driver: a 30-year-old single male driving a 2014 Honda Accord EX with a good driving history and coverage limits of $50,000 bodily injury liability per person/$100,000 bodily injury liability per accident/$50,000 property damage liability per accident with a $500 deductible for comprehensive and collision. The driver’s credit tier was changed to obtain rate differences.

The Zebra’s Auto Insurance Awareness Survey presents the findings of an online survey of 1,165 U.S. auto insurance consumers ages 18 and older. The survey was conducted by independent research firm Survata from October 4-5, 2017. The margin of error for a sample of this size is +/-3% at a 95% level of confidence.

Sources

  1. States Consider Limits on Insurers’ Use of Consumer Credit Info. NCSL

  2. Credit-based insurance scores. NAIC

  3. Credit-Based Insurance Scores Aren’t the Same as a Credit Score. NAIC