If you have recently shopped for auto or home insurance, you may have wondered why insurers ask permission to check your credit report. The answer is straightforward: in most states, insurance companies use your credit history to help calculate your premium. This practice, known as credit-based insurance scoring, can significantly influence what you pay for coverage.

Understanding how credit affects insurance costs can help you take steps to secure better rates and avoid surprises when you apply for a new policy or renew an existing one.

What Is a Credit-Based Insurance Score?

A credit-based insurance score is a rating derived from information in your credit report. Insurers use this score, along with other factors such as your driving record, claims history, and location, to predict the likelihood that you will file a claim.

According to the National Association of Insurance Commissioners (NAIC), credit-based insurance scores focus on elements like payment history, outstanding debt, length of credit history, new credit inquiries, and the mix of credit accounts you hold (NAIC, 2026). These are similar to the factors that standard credit scores evaluate, but the weighting and purpose differ.

Credit-based insurance scores are not the same as the credit scores lenders use when you apply for a loan or credit card. Insurance scores are calibrated specifically to estimate insurance risk, and the scoring models are proprietary to each insurer or the third-party vendors they use.

Why Do Insurers Use Credit Information?

Insurance companies rely on statistical analysis to set rates. Over decades of research, the industry has found a correlation between certain credit behaviors and the frequency or severity of insurance claims. People with stronger credit profiles tend to file fewer claims on average, while those with weaker credit histories file more claims or costlier ones.

Insurers argue that credit-based insurance scores help them price policies more accurately and fairly, ensuring that lower-risk customers pay lower premiums and higher-risk customers pay rates that reflect their risk profile. According to the Insurance Information Institute, this use of credit data is one of many underwriting tools designed to match price to risk (III, 2026).

Critics of the practice point out that credit history may reflect financial hardship rather than personal responsibility, and that the correlation between credit and claims does not establish causation. Some consumer advocates argue that the practice can disproportionately affect lower-income households or individuals recovering from medical bills, divorce, or job loss.

Which Types of Insurance Are Affected?

Credit-based insurance scores are used primarily for personal auto insurance and homeowners insurance. They may also be factored into renters insurance and, in some cases, umbrella liability policies.

Life insurance and health insurance do not use credit-based insurance scores. Health insurers are prohibited from using credit information under the Affordable Care Act, and life insurers typically rely on medical underwriting, not credit data.

How Much Can Your Credit Affect Your Premium?

The impact of credit on your insurance premium varies by state, insurer, and your individual risk profile. In some cases, the difference between a policyholder with excellent credit and one with poor credit can amount to hundreds or even thousands of dollars per year.

For auto insurance, drivers with lower credit-based insurance scores may pay 50 percent to 100 percent more than drivers with higher scores, all else being equal. For homeowners insurance, the spread can be similarly wide. The exact impact depends on how heavily the insurer weighs credit in its rating algorithm, which varies from company to company.

Keep in mind that credit is just one factor. Your driving record, claims history, coverage limits, deductible, vehicle type, home construction, location, and other variables also play significant roles in determining your final premium.

What Information Do Insurers Look At?

When an insurer pulls your credit report for insurance purposes, it is typically a soft inquiry that does not affect your credit score. The insurer reviews data such as:

  • Payment history on credit cards, loans, and other accounts
  • Total outstanding debt and credit utilization
  • Length of time you have held credit accounts
  • Recent credit inquiries and new accounts
  • Public records such as bankruptcies, liens, or collections

Insurers do not see your actual credit score (the three-digit number used by lenders), and they do not see your income, employment history, or account balances. They receive a credit-based insurance score or a set of credit attributes, which their underwriting system then uses to calculate your rate.

State Regulations and Exceptions

Not all states allow insurers to use credit information. California, Hawaii, Massachusetts, and Michigan either ban or severely restrict the use of credit in setting auto insurance rates. Maryland restricts its use for homeowners insurance.

In states where credit-based insurance scoring is permitted, regulators require insurers to justify their use of credit data and demonstrate that the scoring models are actuarially sound and not unfairly discriminatory. The Consumer Financial Protection Bureau provides consumer tools and resources to help individuals understand their rights and dispute errors on their credit reports (CFPB, 2026).

If you live in a state that allows credit-based scoring, insurers must typically provide notice when they use credit information in underwriting or rating your policy. Some states also require insurers to offer you a chance to explain extenuating circumstances, such as a recent medical emergency or identity theft, that may have temporarily damaged your credit.

Steps You Can Take to Improve Your Insurance Score

Because credit-based insurance scores are derived from your credit report, improving your credit health can help lower your insurance premiums over time. Consider these actions:

  • Pay all bills on time. Payment history is one of the most heavily weighted factors in both credit scores and insurance scores.
  • Reduce outstanding debt. Lowering your credit utilization ratio (the percentage of available credit you are using) can improve your score.
  • Avoid opening multiple new credit accounts in a short period. Frequent inquiries and new accounts can signal risk.
  • Check your credit reports for errors. You are entitled to a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once per year. Dispute any inaccuracies you find.
  • Maintain a mix of credit types and keep older accounts open. Length of credit history and account diversity contribute to a stronger profile.

Improving your credit takes time, but even modest gains can translate into meaningful premium savings when you shop for insurance or renew your policy.

Shopping Around Still Matters

Different insurers weigh credit differently, and some place less emphasis on it than others. If your credit history is less than perfect, it pays to compare quotes from multiple carriers. One insurer may penalize your credit heavily, while another may offer you a competitive rate based on other strengths in your profile, such as a clean driving record or years of continuous coverage.

When you request quotes, ask each insurer how credit is factored into the rate and whether they offer discounts or programs for customers working to rebuild their credit.

Conclusion

Your credit history is a significant factor in determining your auto and home insurance premiums in most US states. Insurers use credit-based insurance scores to estimate risk, and policyholders with stronger credit profiles typically enjoy lower rates. While the practice remains controversial, understanding how it works gives you the knowledge to take action: monitor your credit, correct errors, build positive credit habits, and shop around for the best rate.

Coverage rules, rating factors, and regulatory requirements vary by state. For personalized guidance on how your credit may affect your insurance costs, consult a licensed insurance agent in your area and verify current state regulations with your state Department of Insurance.

Disclaimer: This article provides educational information about how credit-based insurance scores are used in the United States. It is not personalized insurance, financial, or legal advice. Insurance rates, underwriting rules, and state regulations change over time. Before making coverage or financial decisions, verify current information with a licensed insurance agent or your state Department of Insurance, and consult a financial professional for advice tailored to your individual situation.