Navigating the world of car insurance can feel like driving through a foggy night—especially when it comes to understanding how your credit score affects your premiums. In 2025, this connection remains a hot topic, influencing millions of drivers across the United States. Whether you’re a seasoned motorist or a first-time car owner, knowing how your credit score shapes your insurance costs can save you hundreds—sometimes thousands—of dollars each year.
Let’s take a clear, human look at how credit scores impact car insurance premiums in 2025, using real-life examples, expert insights, and the latest research to guide you.
What Is a Credit Score, and Why Does It Matter for Car Insurance?
Understanding Credit Scores
A credit score is a three-digit number, typically ranging from 300 to 850, that represents your creditworthiness. It’s calculated using factors like payment history, amounts owed, length of credit history, new credit, and types of credit used. Lenders, landlords, and yes—insurance companies—use this score to gauge how responsibly you manage your finances.
Why Do Insurers Care About Credit?
Insurance companies believe that your financial habits can predict your likelihood of filing a claim. Most insurers use a specialized version of your credit score called a “credit-based insurance score.” This score weighs certain credit behaviors—like late payments or high credit utilization—more heavily than others, focusing on those most statistically linked to insurance risk.
The Direct Link: Credit Scores and Car Insurance Premiums
How Insurers Use Credit Scores
When you apply for car insurance, providers often check your credit-based insurance score alongside other risk factors like your driving record, age, and location. If your score is low, insurers may see you as more likely to file a claim, and they’ll typically charge you a higher premium as a result.
Real-Life Example
Consider two drivers, Alex and Jamie. Both have clean driving records, live in the same city, and drive similar cars. The only difference? Alex has a credit score of 780 (excellent), while Jamie’s is 570 (poor).
- Alex’s annual premium: $1,200
- Jamie’s annual premium: $2,300
That’s a difference of $1,100 per year—just because of credit scores.
Why Such a Big Gap?
Drivers with poor credit are statistically more likely to file claims, so insurers offset this risk by charging higher premiums. A driver with poor credit could pay up to 100% more than a driver with excellent credit in the same circumstances.
2025: The State of Credit Scores and Car Insurance
Most States Still Use Credit Scores
As of 2025, 46 states allow insurance companies to factor in your credit score when setting premiums. Only California, Hawaii, Massachusetts, and Michigan have banned or strictly limited this practice. If you live outside these states, your credit score remains a key player in your insurance costs.
Growing Controversy and Change
The use of credit scores in insurance pricing is controversial. Critics argue it unfairly penalizes responsible drivers who’ve faced financial hardship. This debate has sparked new “fintech” insurance startups promising to use alternative data—like actual driving behavior—instead of credit, but these options are still emerging.
How Credit-Based Insurance Scores Differ from Regular Credit Scores
What’s the Difference?
While both scores draw from your credit history, credit-based insurance scores focus on factors most predictive of insurance risk. For example, payment history and credit utilization are weighted more heavily, while factors like income or employment status are ignored.
Key Factors in Insurance Scores:
- Timely bill payments
- Length of credit history
- Types of credit accounts (credit cards, loans)
- Credit utilization (how much of your available credit you use)
- Recent credit inquiries
What’s Not Considered:
- Your income
- Marital status
- Age
- Race or ethnicity
- Address (except for risk assessment by region)
How Much Can Your Credit Score Affect Your Premium?
Premium Differences by Credit Tier
Here’s a snapshot of how credit scores can impact annual car insurance premiums in 2025:
| Credit Tier | Average Annual Premium |
|---|---|
| Excellent (800+) | $1,100 |
| Good (700–799) | $1,350 |
| Fair (600–699) | $1,800 |
| Poor ( “Customers in lower credit tiers are expected to file more claims based on statistical analysis, so they receive lower insurance scores—and in turn, higher rates.” |
Why Do Insurers Rely on Credit Scores?
The Rationale
Insurance companies argue that credit-based insurance scores help them more accurately predict which customers are likely to file claims. This allows them to set fairer rates and avoid having low-risk drivers subsidize high-risk ones.
Industry Data
The Insurance Information Institute states that studies suggest how a person manages his or her financial affairs is a good predictor of insurance claims.
States Where Credit Scores Don’t Affect Car Insurance
Exceptions to the Rule
Only a handful of states have banned or restricted the use of credit scores in car insurance pricing:
- California
- Hawaii
- Massachusetts
- Michigan
In these states, insurers must rely on other factors—like driving history, age, and vehicle type—to set premiums.
What If You Have a Poor Credit Score?
Don’t Panic—You Still Have Options
Even with less-than-stellar credit, you can take steps to lower your car insurance premiums:
- Shop Around: Rates vary widely between insurers. Some companies weigh credit less heavily than others.
- Ask About Discounts: Many insurers offer discounts for safe driving, bundling policies, or installing anti-theft devices.
- Improve Your Credit: Paying bills on time and reducing debt can boost your score—and lower your premiums over time.
- Consider Usage-Based Insurance: Some new insurers focus on your driving habits, not your credit score, to set rates.
Real-Life Turnaround
Maria, a single mom from Texas, struggled with a poor credit score after a medical emergency. By setting up payment reminders and paying down her credit card balances, she raised her score from 590 to 710 in 18 months. Her annual insurance premium dropped by $800—a huge relief for her family budget.
How to Improve Your Credit Score (and Lower Your Premium)
Practical Steps
- Pay Bills on Time: Consistent, on-time payments are the single most important factor.
- Reduce Credit Card Balances: Keep your credit utilization below 30%.
- Avoid Opening Too Many New Accounts: Multiple hard inquiries can lower your score.
- Check Your Credit Report: Dispute any errors you find.
- Be Patient: Credit improvement takes time, but the payoff can be substantial.
Expert Tip
Michelle Robbins, a licensed insurance agent, advises:
“Improving your credit score is one of the most effective ways to save on car insurance. Even a small increase can make a noticeable difference in your premium.”
Frequently Asked Questions About Credit Scores and Car Insurance in 2025
Does Shopping for Car Insurance Hurt My Credit?
No. Getting quotes results in a “soft inquiry,” which does not affect your credit score.
What’s a Good Credit Score for Car Insurance?
Generally, a score of 700 or higher is considered “good.” Scores below 580 are considered “poor,” and you’ll likely pay more.
Do All Insurers Use Credit Scores?
About 92% of insurers use credit-based insurance scores, but the weight they give this factor varies.
Can Extraordinary Circumstances Affect My Rate?
Some insurers, like Nationwide, offer reconsideration if your credit was impacted by extraordinary events such as natural disaster, divorce, or serious illness.
The Future: Is the Role of Credit Scores in Car Insurance Changing?
Emerging Trends
- Fintech Disruption: New insurance startups are experimenting with models that focus on driving behavior instead of credit scores. These could become more mainstream in the coming years, especially as technology makes real-time driving data easier to collect and analyze.
- Legislative Shifts: The debate over fairness continues, and more states could follow California and Hawaii in restricting or banning the use of credit scores for insurance pricing.
Industry Outlook for 2025
While the majority of drivers in 2025 will still see their credit score impact their car insurance premium, the landscape is shifting. Innovations in telematics (tracking driving habits via apps or devices) and growing consumer pressure may eventually lead to fairer, more personalized pricing models.
Key Takeaways: How to Take Control of Your Car Insurance Costs
- Your credit score is a major factor in your car insurance premium in most states.
- A poor credit score can double your premium compared to excellent credit.
- Improving your credit is one of the fastest ways to lower your insurance costs.
- Shop around and compare quotes—each insurer weighs credit differently.
- Watch for new insurance options that focus on driving behavior, not credit.
Final Thoughts: Your Credit Score, Your Driving, Your Choice
The relationship between credit scores and car insurance premiums in 2025 is complex, but not mysterious. By understanding how insurers use your credit information, you can make smarter choices—both behind the wheel and in your financial life.
Remember, your credit score isn’t just a number; it’s a tool you can use to unlock savings, not just on loans and credit cards, but on your car insurance, too. Take charge, stay informed, and drive confidently into the future.