Key Takeaways
- Poor credit increases full coverage premiums by 98% on average nationally, according to ValuePenguin's 2026 rate analysis.
- State Farm penalizes bad credit the most among major carriers, charging 417% more for drivers with poor credit versus good credit.
- California, Hawaii, Massachusetts, and Michigan prohibit insurers from using credit scores to set auto insurance rates.
- Credit-based insurance scores differ from FICO scores and weigh payment history at 40%, outstanding debt at 30%, and credit length at 15%.
- Getting a car insurance quote triggers only a soft credit pull, which does not affect your credit score.
How Much Does Credit Score Affect Car Insurance Rates?
A 2026 analysis by The Zebra examined 83 million car insurance quotes and found that drivers with Very Poor credit (scores below 523) pay an average of $6,254 per year for full coverage. Drivers with Exceptional credit (823 and above) pay just $1,673 per year for the same policy. That $4,581 annual gap represents a 273% price increase for the lowest credit tier.
ValuePenguin's independent research confirms the pattern from a different angle. Across all major carriers and states, poor credit raises full coverage rates by 98% compared to good credit. A driver with bad credit pays roughly $204 more per month, or $2,448 extra per year, than a driver with good credit and an identical driving record.
Credit Score Impact at a Glance
$4,581/year - Average cost difference between Very Poor and Exceptional credit tiers (The Zebra, 2026)
273% - Rate increase from Exceptional to Very Poor credit nationally
95% - Percentage of auto insurers that use credit-based insurance scores in states where permitted
To put this in perspective, The Zebra found that the credit penalty exceeds the cost of a major traffic violation. An at-fault accident adds an average of $2,088 per year to insurance premiums. Bad credit alone adds $4,581, making a low credit score more than twice as expensive as causing a crash.
Car Insurance Rates by Credit Score Tier
Insurance companies group credit scores into tiers rather than using the exact three-digit number. The Zebra's 2026 data breaks down average six-month premiums across eight tiers based on 83 million rate quotes.
| Credit Tier | Avg. 6-Month Premium | Avg. Annual Cost | Increase vs. Best Tier |
|---|---|---|---|
| Worst (Below 500) | $2,169 | $4,338 | +173% |
| Poor (500-549) | $1,876 | $3,752 | +136% |
| Below Fair to Poor (550-599) | $1,651 | $3,302 | +108% |
| Below Fair (600-649) | $1,471 | $2,942 | +85% |
| Fair to Below Fair (650-699) | $1,318 | $2,636 | +66% |
| Fair (700-749) | $1,180 | $2,360 | +49% |
| Average (750-799) | $1,044 | $2,088 | +32% |
| Good (800-849) | $925 | $1,850 | +17% |
| Excellent (850+) | $794 | $1,588 | Baseline |
Source: The Zebra, 2026 analysis of 83 million car insurance quotes. Premiums reflect national averages for full coverage policies.
Moving up just one credit tier saves an average of 54% on car insurance premiums, according to The Zebra's data. A driver in the "Poor" tier who improves to "Below Fair to Poor" could save roughly $450 over six months without changing anything else about their policy.
Which Insurance Companies Penalize Bad Credit Most (and Least)?
Not every insurer treats credit the same way. ValuePenguin collected quotes from all 50 states to compare how major carriers adjust rates for drivers with poor credit versus good credit on a full coverage policy.
| Insurance Company | Monthly Rate (Poor Credit) | % Increase vs. Good Credit | Credit Penalty Level |
|---|---|---|---|
| State Farm | $801 | 417% | Highest |
| Progressive | $355 | 172% | High |
| GEICO | $305 | 163% | High |
| Allstate | $458 | 162% | High |
| Nationwide | $390 | 147% | Moderate |
| American Family | $296* | ~54% | Low |
Source: ValuePenguin, 2026 rate analysis. Quotes for 30-year-old male, 2018 Honda Civic EX, clean record, full coverage (50/100/50 liability, $500 deductibles). *American Family rate estimated from $104/month difference cited by ValuePenguin.
American Family charges drivers with bad credit roughly $104 more per month than those with good credit, making it one of the most affordable options for low-credit drivers. GEICO also offers competitive rates at $305/month for poor-credit drivers, despite its 163% surcharge, because its base rate for good-credit drivers starts lower than competitors.
States That Ban or Restrict Credit Score Use in Car Insurance
Four states have enacted complete bans preventing auto insurers from using credit scores to price, deny, or refuse to renew car insurance policies. Several additional states impose partial restrictions on how insurers can factor credit into their rating models.
States with Complete Bans
| State | What the Ban Covers | Effect on Drivers |
|---|---|---|
| California | Proposition 103 prohibits use of credit history for underwriting or rating auto policies | Credit cannot affect premiums, eligibility, or renewal decisions |
| Hawaii | Bans credit ratings in underwriting standards and rating plans | Insurers set rates based on driving record, age, vehicle type, and mileage only |
| Massachusetts | Prohibits credit scoring for rate-setting, approval, and renewal of auto policies | State-regulated rate system uses driving history and claims as primary factors |
| Michigan | Bans credit-based insurance scores for denying, canceling, refusing renewal, or setting rates | Michigan's no-fault system relies on driving record and vehicle factors instead |
States with Partial Restrictions
Maryland permits insurers to use credit history for setting rates on new policies but prohibits credit-based denials, cancellations, or premium increases at renewal. Oregon blocks insurers from canceling or refusing renewal based on credit, though companies can consider limited credit data when initially writing a policy.
Utah requires that credit cannot serve as the sole factor in underwriting decisions. Pennsylvania, North Carolina, and Nevada each impose varying restrictions on how heavily insurers can weigh credit information. Drivers in these states benefit from some protection but still see credit-related rate differences.
How Credit Affects Car Insurance Rates by State
The credit penalty varies dramatically depending on where you live. Washington, D.C., imposes the steepest credit-related surcharges, where drivers with poor credit pay three times more for full coverage than those with good credit. Washington state has the smallest increase among states that allow credit scoring, at just 42%.
The Zebra's state-level data shows rate increases ranging from 74% in North Carolina to 285% in Minnesota when a driver's credit drops from Exceptional to Very Poor. Drivers in Texas and Florida face credit penalties above the national average because both states have highly competitive insurance markets where carriers rely heavily on credit-based pricing models.
States with large urban populations tend to show higher credit penalties because base rates start higher, amplifying the percentage difference. A 150% credit surcharge in a state with $800/year base rates adds $1,200 annually, while the same 150% penalty in a state with $2,000/year base rates adds $3,000.
Credit-Based Insurance Score vs. FICO Score
Insurance companies do not use your standard FICO credit score directly. Instead, they calculate a separate credit-based insurance score (CBIS) that draws from the same credit bureau data but applies different weights to predict insurance claim risk rather than loan repayment likelihood.
How Insurance Scores Are Calculated
The FICO Insurance Score weights five factors differently than the standard FICO lending score. Payment history carries 40% of the insurance score weight (compared to 35% for FICO lending). Outstanding debt accounts for 30%, credit history length for 15%, pursuit of new credit for 10%, and credit mix for 5%.
LexisNexis produces the Attract score, which ranges from 200 to 997, while standard FICO scores range from 300 to 850. This difference in scale means a "good" score with one scoring model may not translate to the same tier in another. Each insurer can also build proprietary models on top of these base scores, which explains why the same driver receives different rates from different companies.
Why Do Insurance Companies Use Credit Scores?
The Federal Trade Commission published a comprehensive study in 2007 confirming that credit-based insurance scores are effective predictors of risk across all demographic groups. The FTC found that the correlation between low credit scores and higher claim frequency holds true even after controlling for race, income, and geographic location.
Approximately 95% of auto insurers in the U.S. now use credit-based insurance scores in states where the practice is legal. The National Association of Insurance Commissioners (NAIC) reports that insurers view credit as the second most predictive rating factor after driving record, ranking above vehicle type, annual mileage, and geographic location.
Consumer advocacy groups argue that credit-based pricing disproportionately affects low-income drivers and communities of color, even if the statistical correlation with claims exists. This debate has driven legislative action in four states and continues to prompt new bills in state legislatures across the country. The NAIC maintains a dedicated resource page tracking state-level credit score legislation.
How to Improve Your Credit-Based Insurance Score
Because payment history accounts for 40% of your insurance score, setting up autopay on all credit accounts delivers the single biggest improvement. Even one missed payment can drop an insurance score by 50 to 100 points, and that missed payment stays on your credit report for seven years.
5 Steps to Lower Your Insurance Premiums Through Better Credit
- Pay every bill on time for 12 consecutive months. Insurance scores respond faster to recent payment patterns than FICO lending scores. A full year of on-time payments can move you up one credit tier, saving an average of 54% on premiums.
- Reduce credit card balances below 30% of your limits. Outstanding debt carries 30% weight in the insurance score calculation. Paying down a $5,000 balance on a $10,000 limit card to $2,500 can produce a noticeable score improvement within 60 days.
- Keep old credit accounts open. Credit history length accounts for 15% of your insurance score. Closing a 10-year-old credit card shortens your average account age, which can lower your score even if you never use that card.
- Limit new credit applications to two per year. Each hard inquiry can reduce your insurance score, and the "pursuit of new credit" factor carries 10% weight. Space out credit card or loan applications by at least six months.
- Dispute errors on your credit report annually. The Consumer Financial Protection Bureau reports that 1 in 5 consumers has an error on at least one credit report. Request free reports from AnnualCreditReport.com and dispute inaccuracies with all three bureaus (Equifax, Experian, TransUnion).
What to Do If You Have Bad Credit and Need Car Insurance
Drivers with poor credit can still find affordable coverage by targeting carriers that penalize credit the least. American Family charges poor-credit drivers roughly $104/month more than good-credit drivers, compared to State Farm's $609/month penalty. That difference alone equals $6,060 per year in savings by choosing the right company.
Four insurers skip traditional credit checks entirely: CURE (available in New Jersey, Pennsylvania, and Michigan), Dillo (Texas only), Root (phasing out credit scoring), and Lemonade (uses only soft checks in eight states). These companies base pricing primarily on driving behavior and vehicle data.
Getting quotes from at least five carriers is critical for drivers with below-average credit. The average cost of car insurance varies by as much as 300% between the cheapest and most expensive insurer for the same driver profile. Drivers who compare at least five quotes save an average of $500 per year, according to industry research from the Insurance Information Institute.
Bundling home and auto policies saves 5% to 25% at most major carriers, regardless of credit score. Progressive offers an average bundling discount of 12%, and Nationwide provides up to 20% off when combining auto with homeowners or renters coverage. These discounts apply on top of your base rate and can partially offset a credit-related surcharge.
Requesting a usage-based insurance program like Progressive Snapshot or Allstate Drivewise shifts the pricing emphasis from credit to actual driving behavior. Safe drivers enrolled in telematics programs save an average of 10% to 30%, according to the Insurance Information Institute. Learn more about how age and other factors affect your rates.
Frequently Asked Questions
Does getting a car insurance quote hurt your credit score?
No. Car insurance companies perform a "soft pull" when you request a quote, which does not appear on your credit report and has zero impact on your FICO score. Only "hard pulls" from loan or credit card applications affect your credit. You can request unlimited insurance quotes without any credit consequences.
How much more do drivers with bad credit pay for car insurance?
Drivers with poor credit pay an average of 98% more for full coverage compared to drivers with good credit, according to ValuePenguin's 2026 analysis. The Zebra's data shows the gap can reach 273% when comparing Very Poor credit (below 523) to Exceptional credit (above 823), translating to $4,581 more per year.
Which states do not allow credit scores in car insurance pricing?
California, Hawaii, Massachusetts, and Michigan completely ban insurers from using credit scores to set auto insurance rates. Maryland, Oregon, and Utah impose partial restrictions. Several additional states, including Pennsylvania, North Carolina, and Nevada, limit specific aspects of credit-based insurance scoring.
How long does it take for an improved credit score to lower car insurance rates?
Most insurers re-check credit at policy renewal, which typically occurs every 6 or 12 months. Improving your credit score by one tier before your renewal date can yield an average savings of 54%, according to The Zebra. Some carriers allow mid-term re-rating if you request it after a significant credit improvement.
Sources
- The Zebra - Credit Scores' Impact on Car Insurance (2026)
- ValuePenguin - How Does Your Credit Score Affect Auto Insurance Rates in 2026?
- NAIC - Credit-Based Insurance Scores
- Federal Trade Commission - Report on Credit-Based Insurance Scores (2007)
- Experian - States That Prohibit or Restrict Credit-Based Insurance Scores
- MoneyGeek - Insurance Companies That Do Not Use Credit Scores (2026)
- FICO - Credit Scores vs. Insurance Scores