Study: The Effect Your Credit Score Makes On Your Car Insurance
Growella gathered more than 20,000 auto insurance quotes from U.S. insurers and can now tell you — definitively — how much your car insurance premiums change based on your credit score.
How Does Auto Insurance Work?
Auto insurance is insurance for drivers of cars.
Auto insurance makes cash payments to pay for damage caused in a car accident, for damage resulting from random events such as falling trees, and for replacing a car that’s been stolen.
Auto insurance provides other benefits to drivers, too, including roadside assistance; money for rental cars; and, replacement of a cracked windshield.
Auto insurance is required in most states. This is because car accidents often involve multiple drivers and multiple cars, and the at-fault driver is responsible for the bills of everyone involved.
What does insurance do? Insurance makes sure those bills get paid.
What Determines Your Auto Insurance Rates?
Auto insurance rates vary by driver. What you pay for auto insurance won’t be the same as what your neighbor pays, or what you co-worker pays.
Six questions affect what you’ll pay for auto insurance:
- How much auto insurance coverage do you want?
- What is your age, gender, and marital status?
- Where do you live and work?
- What does your driving record look like?
- What company handles your auto insurance?
- How high is your credit score?
1. How much cash do you want to be paid after a car accident?
Auto insurance pays you cash when you’ve had an accident; and, when your car’s been damaged or stolen. The amount of cash you get depends on the detail of your insurance policy.
Insurance policies are custom. You get to choose how it’s put together.
You can take the minimum amount of auto insurance coverage required by your state, which is your cheapest way to be insured. Or, you can load up on insurance to protect against everything imaginable, which is the most expensive way to be insured.
You can also choose something in-between.
Most auto insurance policies come with six basic protections. As an insured driver, you’re protected against damage to your car and to other cars; injury to you and to others; and, damage to buildings and to structures.
In addition, you’re covered against damage to your car from theft-, random-, and weather-related events; and, against drivers who break the law by carrying too little insurance on their own automobiles.
As the insured driver, it’s your right to ask for additional coverage on these protections beyond just the basics. More coverage means you can get a larger cash payment in the event of an accident.
Extra coverage is a trade-off, though. The more that you request, the more you’ll pay for insurance.
2. What is your age, your gender, and your marital status?
Auto insurance rates vary by age, gender, and marital status. This is because insurance companies price policies based on the chances that you’ll actually make a claim.
Young people make more insurance claims than older people. Men make more insurance claims than women. Single people make more insurance claims than married people.
Age, gender, and marital status affect insurance claims.
- Woman pay less for auto insurance than men
- Married drivers pay less for auto insurance than single people
- Older people pay less for auto insurance than younger people
The differences can be sharp, too.
A 25-year-old woman will generally pay half as much to insure a car as compared to an 18-year-old, and a married 25-year-old woman will pay roughly fifteen percent less.
3. Where do you live and work?
Your auto insurance rates affected by where you live and where you work.
Certain types of homes, such as homes with garages, are linked to lower insurance premiums as compared to homes with street parking only.
This is because garages protect cars from natural elements such as lightning, hail, and wind; and, cars in garages are less susceptible to theft and random damage.
Similarly, car insurance rates drop for drivers with access to gated and garage parking at their place of work.
The distance between your home and work affects insurance, too.
Auto insurance companies don’t typically raise costs for drivers who commute 3 miles or less in each direction, but as the commute to work increases so does the cost to insure.
This is why you should shop for new auto insurance whenever you change jobs — you may be eligible for cheaper insurance.
4. What does your driving record look like?
Your driving record affects what you pay for auto insurance.
Drivers with perfect driving histories pay less for their auto insurance as compared to drivers with a history of speeding tickets, accidents, and DUIs, as examples.
A Growella study of that monitored the effect of driving infractions on auto insurance rates found that even mild speeding tickets can have an out-sized effect on what you pay.
Here is how car insurance costs change for a hypothetical 25-year-old female driver, assuming various driving infractions from five months ago.
- An 11-15 MPH speeding ticket increases insurance costs 18%
- An at-fault accident increases insurance costs 41%
- A DUI offense increases insurance costs 61%
Over time, the effect of moving violations and accidents on your auto insurance rates diminish; your costs decrease with consistent “good driving.”
Major violations, though, can affect your rates for 10 years or longer.
Get Today’s Auto Insurance Rates
5. What company handles your auto insurance?
Your choice of auto insurance companies affects what you pay for car insurance.
Some companies have a preference for drivers that match your profile while other companies do not. It’s one of the reasons why drivers shop for low rates.
State Farm may already be insuring a lot of automobiles in your area, for example; and, for a lot of people your age and gender with similar driving records. Maybe they’ve hit a quota, so their rates are temporarily high.
Allstate, though, by contrast, may be in search of new customers just like you. As a result, their rates may be lower and the terms more aggressive.
You can’t know where you’ll find the cheapest car insurance until you go looking for it. The cheapest provider today may not be the cheapest tomorrow.
6. What is your credit score?
Auto insurers offer cheaper car insurance to drivers with higher credit scores as compared to drivers with lower credit scores — but not because drivers with higher credit scores are less likely to get in an accident.
Drivers with higher credit scores pay less for auto insurance than drivers with lower credit scores because U.S. auto insurance companies have found a correlation between a driver’s credit score and the likelihood of that driver filing an insurance claim for damages.
Drivers with higher credit scores make fewer claims than drivers with low credit scores, which means they’re less expensive to insure, overall.
Even if you’ve never been in a car accident; even if you’ve never received a ticket for speeding; even if you’ve never made a claim, if your credit score is less than excellent, you’re going to pay a premium on your auto insurance policy.
Credit scores matter when you’re shopping for insurance.
How Your Credit Scores Affects Your Auto Insurance
So, how much does your credit score affect your auto insurance rate? In short, by a lot.
Growella gathered tens of thousands of auto insurance quotes as part of this study and found that having a low credit score can raise your car insurance costs more than a driver with high credit scores after an at-fault, 2-car accident would experience.
Let that sink in.
Even with no claims, no accidents, and no moving violations, drivers with low credit scores pay more for auto insurance than drivers with excellent credit, but a recent car crash.
It’s another way that having good credit helps you save money.
As compared to drivers with excellent credit, here’s what drivers with less-than-excellent credit scores pay for their car insurance:
- Drivers with “excellent” credit get the best rates available
- Drivers with “good” credit pay 21% more for car insurance
- Drivers with “average” credit pay 39% more for car insurance
- Drivers with “less-than-average” credit pay 117% more for car insurance
In other words, drivers with less-than-average credit pay more than twice what drivers with excellent credit pay; and, low credit scores cost more than having a DUI.
It pays to improve your credit score. It also pays to shop for new insurance when your score has increased — even by a little.
Remember: most auto insurance policies last for six months, then renew automatically. Insurance companies rarely re-review your credit to see if you deserve a lower rate.
If your credit score has possibly climbed, you should shop for new auto insurance. Even a modest improvement in your credit score can lead to massive savings in your budget.
See Today’s Auto Insurance Rates
The Growella “Credit Scores & Auto Insurance” Methodology
To determine how consumer credit scores affect U.S. auto insurance rates, Growella requested auto insurance quotes for a hypothetical 25-year-old female driver with varying credit scores and gathering more than 22,000 quotes in total.
Auto insurance quotes reflected premiums from the largest U.S. auto insurance companies, such as State Farm, Allstate, and Progressive; as well as from smaller, regional insurers.
We reduced geographical bias by collecting quotes from all 50 states and Washington, D.C.; and, from as many as seven ZIP codes per state comprising urban, suburban, and rural locations.
We broadly applied four credit score tiers to our hypothetical driver. We defined those four tiers — Excellent, Good, Average, and Less-than-Average — as:
- Excellent: Credit score of 720 or higher
- Good: Credit score between 680-720
- Average: Credit score between 620-680
- Less-than-Average: Credit score below 620
We also considered the laws in California, Hawaii, and Massachusetts which precludes insurers from using consumer credit scores to set auto insurance premiums. As expected, insurance quotes showed no variance in these three states.
It should be noted that none of our research was subjective. It’s why this study isn’t titled “The Best Auto Insurance For Millennials” or something similar. The word “best” implies opinion. Our results are unbiased. They’re based on data and original research.
1. About our 25-year-old driver
For our study, we assumed a 25-year-old female driver with no prior speeding tickets, no prior moving violations, and no at-fault accidents; and, with nine years of experience as a licensed driver.
We also assumed that is currently single, with zero children, and has never been married.
She is a college graduate, and her job earns a salary. Her commute to work each day is short; and, she drives an average of 1,000 miles per month.
Our driver parks her car on the street at home, and on the street at work.
2. About our driver’s automobile
Our hypothetical driver owns her car. It’s a 2013 Honda Civic with four doors, a four-cylinder engine, and basic amenities. In other words, it’s among the most commonly driven cars for female drivers in their twenties.
Our driver financed her car using an auto loan, and she insures it using the minimum coverage allowable by law. She does not pay for additional insurance coverage including Gap insurance and personal liability insurance.
Her auto insurance is not bundled with her renter’s insurance, even though bundling insurance can reduce insurance costs by 20% or more. We chose a la carte auto insurance rates because introducing bundling into this study changed the effects of credit scores on auto insurance rates.
3. About our driver’s insurance quotes
Our driver’s insurance quotes were researched and collated by members of Growella’s research team.
Our team solicited insurance quotes from national and regional auto insurers using publicly-available websites; and, phone calls and emails, where appropriate.
We omitted quotes from hyper-local insurers, credit union insurance programs, and other membership-based insurance programs — such as those through Costco and Sam’s Club.
Also, we specifically omitted insurance quote data from Hawaii, Massachusetts, and California in our Credit Score vs. Auto Insurance Rates conclusions. We did this because, in Hawaii, Massachusetts, and California, state law prevents auto insurers from using credit scores to determine a person’s car insurance rates.
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