How Credit Scores Impact Auto Insurance Premiums
KEY POINTS
- Drivers with excellent credit history paid $1,947 for auto insurance in 2023, $1,070 below the national average auto insurance payment.
- Drivers with poor credit history paid $4,145 for auto insurance in 2023, $1,128 more than the national average.
- On average, USAA provides the cheapest car insurance for drivers with poor credit: $2,254 per year. Auto-Owners is most expensive for drivers with poor credit: $5,224 per year.
Credit history plays a significant role in how much you'll pay for auto insurance. The average annual cost of auto insurance for good credit was $1,947 in 2023, roughly $162 a month. The average annual cost of car insurance for poor credit history was over double that: $4,145, roughly $345 a month.
Credit history isn't the only data point auto insurance companies look at when determining premiums, but it is an important one. Insurance companies use credit history to calculate insurance scores and assess the likelihood of a claim being filed.
To help drivers understand how their credit score impacts their auto insurance payment, the Motley Fool Motley Fool Money has compiled data on:
- The average cost of auto insurance for those with excellent and poor credit.
- The average cost of auto insurance in all 50 states for those with excellent and poor credit.
- The average cost of car insurance from major insurance companies for those with excellent and poor credit.
Average auto insurance cost by credit score
| Year | National average | Excellent credit history | Poor credit history |
|---|---|---|---|
| 2021 | $2,640 | $1,703 | $3,611 |
| 2022 | $2,875 | $1,846 | $3,955 |
| 2023 | $3,017 | $1,947 | $4,145 |
Auto insurance policyholders with excellent credit pay on average about 65% of the national average cost of car insurance, while those with poor credit history pay roughly 137% of the national average.
In 2023, drivers with excellent credit paid $1,070 less than the average American over the entire year and $2,198 less than drivers with poor credit, per data provided by Quadrant.
Drivers with poor credit ended up paying $1,128 more than the average American.
Since 2021, the difference in auto insurance payments between those with excellent credit history and those with poor credit history has been around $2,000 per year.
How credit score impacts auto insurance premiums in all 50 states
The average premium for those with poor credit is at least double that of those with excellent credit in 27 states.
Arizona, New Hampshire, New York, and New Jersey punish drivers the most on average for having poor credit when comparing premiums to those with excellent credit. Those states also reward drivers with excellent credit the most, when compared to the overall average annual car insurance premiums in those states.
Oklahoma, Nevada, North Carolina, Florida, and New Mexico have the lowest percent difference between average auto insurance premiums for drivers with excellent and poor credit. Still, those with excellent credit in those states all save over $1,000 on auto insurance on average compared to policyholders with poor credit.
California, Hawaii, Massachusetts, and Michigan prohibit auto insurance companies from using credit history as a component of setting auto insurance rates for customers, so data is not available for most of those states.
While the data does show that Michigan drivers with poor credit pay thousands more than those with excellent credit, it's not because insurance companies in the state are using credit history to set rates. Instead, drivers with poor credit pay higher rates in Michigan due to other risk factors.
How credit score impacts auto insurance company rates
Auto insurance companies reward drivers with excellent credit with a lower premium, although some do so more than the others.
| Company | Average annual premium | Poor credit | Excellent credit |
|---|---|---|---|
| Auto-Owners | $3,297 | $5,224 | $1,369 |
| State Farm | $2,595 | $4,123 | $1,126 |
| Allstate | $3,534 | $4,622 | $2,512 |
| Farm Bureau | $2,706 | $3,608 | $1,803 |
| Farmers | $3,406 | $4,272 | $2,595 |
| Progressive | $2,453 | $3,162 | $1,793 |
| Nationwide | $2,770 | $3,410 | $2,090 |
| USAA | $1,696 | $2,254 | $1,138 |
| Geico | $2,182 | $2,707 | $1,658 |
Auto-Owners punishes drivers with poor credit and rewards drivers with excellent credit more than other major auto insurance providers. Excellent credit shaves $1,928 on average off policy holders' premiums compared to the overall average premium from Auto-Owners, while poor credit tacks on a similar amount, $1,927.
Geico has the smallest gap between the average annual premiums paid by those with excellent and poor credit, although policy holders with excellent credit still save $1,049 a year compared to those with poor credit and $524 compared to the average Geico auto insurance customer.
Why your credit score matters for car insurance rates
Auto insurance companies use credit history to determine the insurance score of a customer or prospect, which along with other factors like driving history, age, location, vehicle model, and more generate a policy price.
Auto insurance companies look at credit history to determine how likely it is that someone may file a claim and therefore assess risk -- an important factor in pricing a policy.
California, Hawaii, Massachusetts, and Michigan do not allow companies to use credit history as a factor in pricing policies for customers in those states.
How to boost your credit score and save on car insurance
Improving your credit score can result in car insurance being more affordable. These are some tips to boost your credit score and net car insurance savings:
- Pay your bills on time: Payment history is the most important factor credit bureaus look at when calculating credit scores. One late payment can significantly lower your score. Setting up autopay for recurring payments is one way to build payment history over time.
- Pay off debt: Maintaining a healthy credit utilization ratio is the second factor credit bureaus consider. Paying off your entire credit card balance each month is the best way to keep a healthy credit utilization ratio. If that's not possible, aim to keep your balance below 30% of your credit limit.
- Avoid hard credit checks: Hard credit checks can lower your credit score. These occur when applying for a new credit card or loan.
Our Research Expert
Jack Caporal is the Research Director for The Motley Fool and Motley Fool Money.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.