Auto insurance companies are in the business of predicting risk. Their goal is to determine how likely you are to file a claim. To do this, they rely on various data points—your driving history, location, vehicle, and, yes, your credit-based insurance score.

Your credit-based insurance score isn’t the same as your FICO score, but it’s built from similar components. It reflects:

  • Payment history (are you consistently on time?)
  • Outstanding debt and credit utilization
  • Length of credit history
  • Types of credit in use
  • Recent credit inquiries

Insurers have found that people with lower credit-based scores are statistically more likely to file claims and may also be more likely to miss premium payments. As a result, they often charge higher rates to drivers with poor or fair credit, regardless of their driving record.

Which States Allow Credit-Based Insurance Scoring?

Currently, most U.S. states allow insurance companies to use credit scores in their pricing formulas. However, a few states restrict or prohibit this practice to protect consumers:

  • California – Bans the use of credit history in setting auto insurance rates
  • Hawaii – Prohibits using credit for insurance rating and underwriting
  • Massachusetts – Bans insurers from using credit information
  • Michigan – Restricts how credit can influence pricing

If you live in one of these states, your credit score won’t impact your rate. For everyone else, it’s a factor you can’t afford to ignore.

How Much Can a Poor Credit Score Increase Your Insurance Premium?

The difference in insurance premiums between a driver with excellent credit and one with poor credit can be dramatic. According to research from the Consumer Federation of America and insurance comparison platforms, a driver with poor credit can pay up to 60% more than a driver with excellent credit—all other factors being equal.

Let’s break this down with an example:

Credit ScoreEstimated Annual Premium (Same Driver Profile)

Excellent $1,200

Good $1,400

Fair $1,650

Poor $2,000+

Even if your driving record is clean, your credit history can quietly drive up your costs year after year.

Tips to Improve Your Credit—and Your Rates

Fortunately, credit scores are not fixed forever. You can raise your score and eventually lower your insurance premiums with effort and time. Here’s how:

1. Pay Bills On Time

Your payment history is the most critical factor in most credit scoring models. Set reminders or autopay to avoid missed or late payments.

2. Reduce Credit Card Balances

Lowering your credit utilization (the percentage of your credit limit you’re using) can quickly boost your score. Aim to keep it under 30%.

3. Avoid Opening Too Many Accounts

Every hard inquiry into your credit can cause a temporary dip. Only apply for credit when needed.

4. Monitor Your Credit Reports

Errors can happen. Review your reports regularly at AnnualCreditReport.com and dispute inaccuracies.

5. Maintain Older Accounts

The longer your credit history, the better. Don’t close old accounts unless necessary.

Improving your credit will not only help with insurance—it can also lead to better loan rates, credit card offers, and even job opportunities.

Defensive Driving Courses: An Immediate Way to Offset High Premiums

While improving your credit takes time, there’s a faster way to reduce your insurance costs—especially if your credit is currently less than ideal: taking a state-approved defensive driving course.

Here’s how these courses can help:

  • Insurance Discounts – Many insurers offer up to 10% off your premium for completing an approved course. In states like New York, this discount can last for three years.
  • Point Reduction—If you’ve received a traffic ticket, a defensive driving course may reduce points on your license, helping you avoid rate hikes.
  • Risk Reduction – Defensive driving teaches habits that make you statistically less likely to file claims—making you a lower risk for insurers.

While your credit score might label you “high risk,” completing a defensive driving course proves to insurers that you take safety seriously—and that can result in immediate savings.

Putting It All Together: What Drivers Should Do Next

You’re not alone if you’re facing high auto insurance premiums due to a low credit score. The key is to act on two fronts:

  1. Improve your credit by paying bills on time, reducing debt, and maintaining good financial habits.
  2. Take a defensive driving course, ask about safe driver or bundling discounts, and compare rates across providers to find immediate savings.

Being proactive can save you hundreds of dollars a year and give you more control over your financial future.

Final Thoughts

Your credit score may not have anything to do with your driving ability—but for many insurers, it’s a central piece of the pricing puzzle. Understanding how it affects your premiums is the first step toward reducing costs.

And while improving your credit takes time, there are smart, immediate moves you can make today, like enrolling in a defensive driving course, that can help you save money immediately.

Drive smart. Stay informed. And take control of what you pay.