DO AUTO INSURANCE COMPANIES RUN YOUR CREDIT

Yes, auto insurance companies often run your credit. This practice, known as using a credit-based insurance score, significantly impacts your premiums in many states. Understanding how this works can help you navigate the insurance shopping process and potentially find better rates.

Understanding Credit Scores and Insurance

When you apply for auto insurance, many providers will look at your credit history. This isn't to see if you're a good borrower, but rather to assess your likelihood of filing a claim. The logic behind this practice, which is widely adopted by insurers, is based on statistical data suggesting a correlation between credit behavior and insurance risk. In essence, insurers believe that individuals with better credit histories tend to be more responsible, which they extrapolate to mean they are less likely to be involved in accidents or file claims.

This correlation, however, is a subject of ongoing debate. Critics argue that using credit information for insurance pricing is discriminatory, as it can penalize individuals for factors outside of their driving behavior, such as job loss, medical emergencies, or predatory lending practices. Despite these concerns, the practice remains prevalent in most of the United States, significantly influencing the premiums drivers pay. Understanding this connection is the first step for any consumer looking to get the best possible auto insurance rates.

The credit information used by insurance companies is not exactly the same as the FICO score you might check for a loan. Instead, they utilize a specialized "credit-based insurance score." This score is derived from a more limited set of credit report data and is specifically designed to predict insurance risk. While it shares common factors with traditional credit scores, its weighting and components can differ. For example, certain inquiries or the length of credit history might be more or less impactful on an insurance score than on a FICO score.

The practice of using credit for insurance pricing has been around for decades, gaining traction as insurers sought more sophisticated methods for risk assessment. Early studies and subsequent analyses by insurance companies indicated a statistical link between credit history and the probability of filing an insurance claim. These findings led to the development of credit-based insurance scores, which are now a standard underwriting tool for many auto insurance providers across the country. It's important to note that while many states permit this practice, some have placed restrictions or outright bans on its use.

For consumers, this means that the premium you are quoted is not solely based on your driving record, age, vehicle type, and location. Your financial habits, as reflected in your credit report, can play a substantial role. This can be particularly frustrating for individuals who are diligent drivers but have experienced financial setbacks that have impacted their credit. Recognizing this, many consumers actively seek ways to understand and improve their credit-based insurance scores, hoping to secure more affordable coverage. This blog post will delve into the intricacies of this practice, offering insights and actionable advice for navigating the auto insurance landscape.

How Credit Scores Influence Auto Insurance Rates

The impact of your credit-based insurance score on your auto insurance premiums can be substantial, often leading to significant differences in the rates offered by various insurance companies. Insurers use this score as a predictive tool, believing that it offers a more accurate assessment of risk than driving history alone. While the exact algorithms are proprietary and vary between insurance companies, the general principle is consistent: a higher credit-based insurance score typically results in lower premiums, while a lower score leads to higher costs.

Consider this: studies and industry data from 2025 consistently show that drivers with excellent credit can pay, on average, 20-30% less for auto insurance than those with poor credit. For example, a driver with an excellent credit-based insurance score might pay $1,200 annually for comprehensive coverage, while a driver with a poor score, with an otherwise identical profile, could be quoted $1,800 or more for the same policy. This disparity highlights the financial importance of maintaining good credit, not just for loans and mortgages, but also for everyday expenses like car insurance.

The reason for this correlation, according to insurance industry research, is that individuals with lower credit scores are statistically more likely to file claims. This increased likelihood of claims translates to higher potential payouts for the insurance company. To mitigate this perceived risk, insurers adjust premiums accordingly. It's a risk-management strategy, albeit one that can disproportionately affect individuals facing financial hardship, regardless of their driving habits.

It's crucial to understand that this is not a universal rule across all states. Some states have enacted laws that restrict or prohibit the use of credit information in setting auto insurance rates. However, in the majority of states where it is permitted, this practice is a significant factor in determining your premium. For instance, a 2025 survey of insurance rates in states like California, Michigan, and Massachusetts, which have limitations or bans on credit scoring, showed a less pronounced difference in premiums based on credit history compared to states like Texas or Florida, where credit scoring is heavily utilized.

The specific factors that contribute to your credit-based insurance score are key. While a detailed breakdown is complex, generally, items that indicate financial instability or irresponsibility in your credit report can negatively impact your score. This includes things like late payments, high credit utilization, collections, bankruptcies, and a short credit history. Conversely, a history of on-time payments, low credit utilization, and a long, well-managed credit history tend to result in a higher insurance score.

Therefore, when shopping for auto insurance, it's not just about comparing quotes based on your driving record and vehicle. It's also about understanding how your credit history might be influencing those quotes. Even small differences in your credit-based insurance score can lead to noticeable variations in premiums. This is why many consumers find it beneficial to check their credit reports and take steps to improve their creditworthiness before or during the insurance shopping process. The financial benefits can be substantial, making it a worthwhile endeavor for many drivers.

States Where Auto Insurance Companies Use Credit Information

The practice of using credit-based insurance scores to determine auto insurance premiums is not uniformly applied across the United States. State laws and regulations play a significant role in dictating whether and how insurers can leverage this information. As of 2025, a majority of states permit the use of credit information, but a growing number have implemented restrictions or outright bans due to concerns about fairness and potential discrimination.

Here's a general overview of the landscape in 2025:

• States Permitting Credit Scoring (with varying degrees of regulation): Most states allow insurers to use credit-based insurance scores. This includes large states like Texas, Florida, Ohio, Arizona, and Missouri. In these states, your credit history can have a direct and significant impact on your auto insurance rates. Insurers in these jurisdictions will typically pull a specialized credit-based insurance score when you apply for a policy.
• States with Restrictions or Limitations: Some states allow credit scoring but have placed specific limitations on its use. For example, they might prohibit its use for certain demographic groups, require insurers to offer discounts for good credit, or mandate that credit information can only be one factor among many in determining rates. States like Pennsylvania and North Carolina fall into this category, where credit scoring might be used, but with more oversight.
• States Banning Credit Scoring: A smaller but significant group of states have banned the use of credit-based insurance scores for auto insurance pricing altogether. These states prioritize basing rates solely on driving behavior and other non-credit-related factors. Notable states that have banned or severely restricted credit scoring include California, Michigan, Massachusetts, Hawaii, and Maryland. In these states, your credit score will not directly influence your auto insurance premiums.

It's important to note that the regulatory landscape is dynamic. Laws can change, and insurers may adjust their practices based on new legislation or court rulings. Therefore, it's always advisable to check the specific regulations in your state or consult with your state's Department of Insurance for the most up-to-date information.

For example, in California, Proposition 103, passed in 1988, mandated that insurers base rates primarily on driving safety, mileage, and years of driving experience. While some credit-related factors might indirectly influence these, a direct credit score check for pricing is prohibited. Similarly, Michigan has been at the forefront of auto insurance reform, with recent legislation (as of 2025) further emphasizing driver behavior over credit history in determining rates.

Conversely, in states like Texas, the use of credit-based insurance scores is a standard practice. A driver with excellent credit in Texas might receive quotes that are significantly lower than a driver with poor credit, even if their driving records are identical. This can create a substantial financial incentive for residents of these states to maintain good credit.

Understanding where you live and how state laws affect credit scoring is crucial when shopping for auto insurance. If you reside in a state that bans credit scoring, you can focus your efforts on comparing quotes based on your driving record, vehicle, and other permissible factors. If you live in a state that permits credit scoring, improving your credit score could be a powerful strategy for lowering your insurance costs. Always verify the specific rules in your state to make informed decisions about your auto insurance coverage and budget.

What Credit Factors Do Insurers Consider?

While auto insurance companies use a credit-based insurance score, it's not a direct replica of the FICO score you might use for loans. Instead, they extract specific elements from your credit report and weigh them differently to predict insurance risk. The exact methodology is proprietary to each insurance company, but several key credit factors are consistently considered. Understanding these factors can help you identify areas to focus on if you aim to improve your insurance score.

Here are the primary credit factors that auto insurance companies typically consider:

• Payment History: This is often the most significant factor. Late payments, especially recent ones or those that have gone to collections, can negatively impact your score. A consistent history of on-time payments is highly beneficial. Insurers look at the recency, frequency, and severity of delinquencies.
• Credit Utilization Ratio: This refers to the amount of credit you are using compared to your total available credit. A high credit utilization ratio (e.g., consistently using more than 30% of your credit limit on credit cards) can indicate financial strain and may lower your score. Keeping balances low relative to your credit limits is advantageous.
• Length of Credit History: A longer credit history generally suggests more experience managing credit. Insurers may view a longer history of responsible credit management favorably. However, this factor is often less impactful than payment history or credit utilization.
• Credit Mix: Having a mix of different types of credit, such as credit cards, installment loans (like car loans or mortgages), can sometimes be viewed positively, as it demonstrates the ability to manage various forms of debt. However, this is usually a minor factor.
• New Credit and Inquiries: Opening several new credit accounts in a short period or having numerous credit inquiries can sometimes signal increased risk, as it might suggest financial instability or an attempt to obtain a large amount of credit quickly. Insurers may consider this, though its impact can vary.
• Public Records: Bankruptcies, judgments, and tax liens are serious negative marks on your credit report and will significantly lower your credit-based insurance score.

It's important to note what is generally *not* considered by most insurers for credit-based insurance scores:

• Income or Salary: Your earnings are not directly factored into your credit-based insurance score.
• Age: While age is a factor in auto insurance rates, it's not directly part of the credit-based insurance score calculation.
• Race or Ethnicity: Credit scoring models are designed to be race-neutral.
• Marital Status: While marital status can sometimes affect insurance rates, it's not typically part of the credit scoring algorithm itself.
• Employment History: Your job stability or type of employment is generally not a component of the credit-based insurance score.

The exact weighting of these factors varies. For instance, one insurer might place more emphasis on payment history, while another might give more weight to credit utilization. This is why two individuals with very similar credit reports might receive slightly different insurance scores from different companies.

For example, if you have a few late payments from five years ago that are no longer on your standard credit report, they might still be considered by an insurance underwriter if they have a longer look-back period for insurance scoring purposes. Similarly, if you have a high credit card balance on one card but many other cards with zero balances, the overall utilization might still be low, but the insurer might look at the specific card's utilization.

To illustrate the impact, consider two individuals: Person A has a spotless payment history and low credit utilization across all their accounts. Person B has a couple of 30-day late payments from two years ago and a higher utilization on one credit card. Even if their FICO scores are close, Person A will likely have a significantly higher credit-based insurance score, leading to lower auto insurance premiums in states where credit scoring is permitted.

Understanding these components is key. If you're looking to lower your auto insurance costs in a state that allows credit scoring, focusing on improving your payment history and reducing your credit card balances are often the most effective strategies. These actions not only benefit your overall credit health but can directly translate into savings on your car insurance premiums.

How Do Auto Insurance Companies Obtain Your Credit Information?

When you apply for auto insurance, and if you reside in a state where credit scoring is permitted, insurance companies will typically request permission to access your credit information. This is a standard part of the underwriting process. They don't just randomly pull your credit; they usually require your consent, which is often bundled within the application paperwork you sign. This permission allows them to obtain a specialized credit report used for insurance scoring purposes.

The process generally works as follows:

1. Application and Consent: During the application process, you'll be asked for personal information, including your Social Security number, date of birth, and address. You will also be presented with disclosure statements and consent forms. By signing these, you authorize the insurance company or a third-party vendor on their behalf to obtain your credit information.
2. Third-Party Credit Reporting Agencies: Insurance companies do not directly access your credit file from the major credit bureaus (Equifax, Experian, TransUnion) in the same way a mortgage lender might. Instead, they typically work with specialized credit reporting agencies that compile data specifically for insurance underwriting. These agencies may use data from the major bureaus but also have their own proprietary methods and data sources.
3. Specialized Credit Reports: The report generated for insurance purposes is not the same as the credit report you'd get to check your FICO score. It's often referred to as a "credit-based insurance score report" or an "insurance credit report." These reports contain a subset of the information found in a standard credit report and are specifically tailored to predict insurance risk. They focus on the factors discussed previously, such as payment history, credit utilization, and length of credit history.
4. Credit-Based Insurance Score Generation: Once the insurance company or its vendor receives the specialized credit report, they use a proprietary scoring model to generate a credit-based insurance score. This score is a numerical representation of your assessed insurance risk based on your credit data.
5. Underwriting and Pricing: This credit-based insurance score is then used, along with other factors like your driving record, age, vehicle, and location, to determine your eligibility for coverage and the final premium you will pay.

It's important to understand that when an insurer pulls your credit for insurance purposes, it is typically considered a "soft inquiry." Soft inquiries do not affect your credit score, unlike "hard inquiries" that occur when you apply for new credit, such as a loan or credit card. This means that checking your credit for an auto insurance quote won't hurt your credit score.

However, the frequency of these checks can be a point of confusion. While a single soft inquiry won't hurt, insurers often re-evaluate your credit information periodically, sometimes annually, especially at renewal time. This is to ensure your premium accurately reflects your current risk profile. If your credit has deteriorated, your renewal premium might increase.

For example, if you apply for insurance with three different companies, each company might obtain its own specialized credit report and generate its own credit-based insurance score. This is why quotes can vary significantly even if your driving record is identical. Each insurer uses its own underwriting rules and scoring models.

Some consumers worry about their credit being accessed without their knowledge. However, by law, insurance companies must provide disclosures and obtain consent. If you are unsure about what you are signing, always ask for clarification or read the disclosure statements carefully. You have the right to know that your credit information is being accessed and how it will be used.

In summary, insurance companies obtain your credit information through a consent-based process, utilizing specialized credit reporting agencies and proprietary scoring models. This information is then used to generate a credit-based insurance score, which plays a role in determining your auto insurance premiums in most states. Understanding this process empowers you to ask the right questions and take informed steps to manage your credit for potential savings.

Credit-Based Insurance Score vs. FICO Score

It's a common misconception that auto insurance companies use your standard FICO score when determining your premiums. While both scores are derived from your credit report and aim to predict future behavior, they are distinct and serve different purposes. A credit-based insurance score is specifically designed to predict the likelihood of an insurance claim, whereas a FICO score is designed to predict the likelihood of loan default.

Here's a breakdown of the key differences:

Purpose:

• FICO Score: Primarily used by lenders (banks, credit card companies, mortgage lenders) to assess creditworthiness and the risk of a borrower defaulting on a loan.
• Credit-Based Insurance Score (CBIS): Used by insurance companies to predict the likelihood of an insured individual filing an insurance claim and the potential cost of those claims.

Data Used:

• FICO Score: Considers a broad range of credit behaviors, including payment history, amounts owed, length of credit history, credit mix, and new credit. It aims for a comprehensive view of a borrower's financial management.
• CBIS: Focuses on a more limited set of credit data that has been statistically linked to insurance risk. While it includes factors like payment history and credit utilization, the weighting and specific data points may differ. For example, certain types of inquiries or the exact mix of credit accounts might be weighted differently or excluded from an insurance score. Some data points that might impact a FICO score (like the number of credit inquiries in the past 12 months) might have a less significant impact on an insurance score, or vice versa.

Scoring Models:

• FICO Score: Developed by the Fair Isaac Corporation, there are various FICO score versions (e.g., FICO Score 8, FICO Score 9, FICO Auto Score). Lenders choose which version to use.
• CBIS: Developed by specialized credit reporting agencies (like LexisNexis, Verisk) that work with insurance companies. These models are proprietary and tailored to predict insurance risk, not loan default.

Impact of Certain Factors:

• Length of Credit History: A longer credit history is generally positive for both scores, but the emphasis might differ.
• Credit Utilization: High credit utilization negatively impacts both scores, but the threshold for impact might vary.
• Public Records: Bankruptcies and judgments significantly harm both scores.
• Medical Debt: In recent years, some FICO score versions have made efforts to exclude or reduce the impact of medical collections. However, it's unclear if all CBIS models have adopted similar changes, and past medical debt could still influence an insurance score.

How They Are Obtained:

• FICO Score: You can obtain your FICO score directly from FICO or through many credit card issuers and financial institutions that offer free FICO scores as a benefit. Lenders pull these scores when you apply for credit.
• CBIS: Insurers obtain these scores through specialized credit reporting agencies, usually with your consent during the insurance application process. You typically cannot get your exact CBIS score directly from the major credit bureaus or FICO.

Example Scenario:

Imagine two individuals, Sarah and John. Sarah has a high FICO score (e.g., 780) because she has managed her credit responsibly for years, always pays on time, and has low credit card balances. However, she recently experienced a medical emergency that resulted in a significant medical bill she's still paying off, which might slightly lower her FICO score. John also has a good FICO score (e.g., 750) but has a few more credit cards with higher balances, though he always pays on time. He has no significant medical debt.

When applying for auto insurance in a state that uses credit scoring:

• Sarah's CBIS might be slightly lower than her FICO score due to the medical debt, depending on how the insurer's model treats it.
• John's CBIS might be closer to his FICO score, or potentially even higher if the insurer's model penalizes high credit utilization less than other factors.

This means Sarah, despite having a higher FICO score, might end up with a slightly higher premium than John if the insurer's CBIS model penalizes medical debt more heavily than John's higher credit utilization. This illustrates why understanding the CBIS is more relevant for auto insurance pricing than your general FICO score.

In essence, while your FICO score provides a general picture of your credit health, your credit-based insurance score is a specialized tool tailored to predict insurance risk. Both are important for your financial well-being, but for auto insurance premiums, the CBIS is the direct influencer.

Strategies to Improve Your Credit-Based Insurance Score

If you live in a state where auto insurance companies use credit-based insurance scores, and you find that your current score is negatively impacting your premiums, there are several proactive steps you can take to improve it. While you can't directly access or "fix" your insurance score like you can a FICO score, you can improve the underlying credit factors that contribute to it. This, in turn, will likely lead to a better insurance score over time and potentially lower premiums.

Here are actionable strategies to improve your credit-based insurance score:

1. Pay All Bills On Time, Every Time: This is the most crucial factor. Late payments are significant negative marks on your credit report. Set up automatic payments or reminders to ensure you never miss a due date for credit cards, loans, utility bills, and any other recurring expenses. Even a single 30-day late payment can have a substantial negative impact.
2. Reduce Credit Card Balances (Lower Credit Utilization): Aim to keep your credit utilization ratio low, ideally below 30% on each credit card and overall. If you have high balances, focus on paying them down. Paying off debt not only lowers your utilization but also demonstrates responsible financial management.
3. Avoid Opening Too Many New Credit Accounts: While a mix of credit can be beneficial, opening numerous new accounts in a short period can negatively affect your score. Only apply for credit when you genuinely need it.
4. Don't Close Unused Credit Cards (Unless Necessary): Closing old, unused credit cards can reduce your total available credit, which can increase your credit utilization ratio and potentially lower your score. Keep them open and in good standing, perhaps making a small purchase occasionally to keep them active.
5. Address Collections and Delinquencies: If you have accounts in collections or past-due accounts, work to resolve them. While these marks may remain on your report for a period, settling them can be viewed more favorably than leaving them unresolved.
6. Check Your Credit Reports for Errors: Regularly obtain copies of your credit reports from Equifax, Experian, and TransUnion (you can get free copies annually at AnnualCreditReport.com). Review them carefully for any inaccuracies, such as incorrect late payments, accounts that aren't yours, or incorrect balances. Dispute any errors with the credit bureau immediately. Errors can unfairly lower your score.
7. Be Patient: Improving your credit takes time. The positive effects of your efforts won't appear overnight. Consistent good financial behavior over months and years is key to building a strong credit history.
8. Consider a Secured Credit Card or Credit-Builder Loan: If you have very limited credit history or are rebuilding credit after financial difficulties, these tools can help. A secured credit card requires a cash deposit as collateral, and a credit-builder loan allows you to make payments on a loan that is held in an account until it's paid off. Responsible use of these can help establish or rebuild positive credit history.

Example Scenario:

Let's say Maria lives in Texas and her auto insurance premium is higher than she expected. She checks her credit report and finds that she has a couple of credit cards with balances close to their limits, and she missed a payment on one card about 18 months ago. She decides to take action:

• Action 1: Pay Down Balances: Maria prioritizes paying down her credit card debt, focusing on reducing her utilization ratio below 30%.
• Action 2: Set Up Auto-Pay: She sets up automatic payments for all her bills to ensure she never misses a due date again.
• Action 3: Monitor Credit: She regularly checks her credit report for any new issues or errors.

After about 6-12 months of consistent good habits, Maria requests new auto insurance quotes. She finds that her credit-based insurance score has improved, and her new quotes are significantly lower than her previous premium. The difference might be hundreds of dollars per year.

While you can't directly request an insurance company to re-evaluate your score immediately, many insurers will re-run your credit at renewal time. By improving your creditworthiness, you increase the likelihood of a better score when that re-evaluation occurs. Focusing on these fundamental credit management practices is the most effective way to improve your credit-based insurance score and, consequently, your auto insurance rates.

What Happens If You Live in a State That Bans Credit Scoring?

For drivers residing in states that have banned or severely restricted the use of credit-based insurance scores, the auto insurance landscape looks quite different. These states prioritize other factors when determining premiums, aiming for a more direct correlation between driving behavior and insurance costs. If you live in one of these states, you can generally expect your credit history not to be a direct factor in your auto insurance rates.

Here's what typically happens and what factors become more prominent:

• Focus on Driving Record: In states like California, Michigan, Massachusetts, Hawaii, and Maryland, your driving record is paramount. This includes factors such as:
  • Number of accidents (at-fault and not-at-fault)
  • Number of traffic violations (speeding tickets, DUIs, etc.)
  • Your driving history length and any gaps in coverage
  Insurers in these states will heavily scrutinize your driving history to assess risk.
• Mileage and Usage: The number of miles you drive annually is a key factor. Lower mileage generally correlates with lower risk, leading to lower premiums. Some insurers may offer pay-per-mile or low-mileage discounts.
• Vehicle Type and Safety Features: The make, model, year, and safety features of your vehicle are critical. Expensive vehicles, those with high theft rates, or those with poor safety ratings will typically cost more to insure.
• Age and Experience: While credit is out, age and years of driving experience remain significant. Younger, less experienced drivers often face higher premiums due to a statistically higher risk of accidents.
• Location: Where you live (ZIP code) plays a substantial role due to factors like traffic density, accident rates, theft rates, and weather patterns in that area.
• Coverage Choices and Deductibles: The types of coverage you select (liability, collision, comprehensive) and the deductible amounts you choose will directly impact your premium. Higher deductibles typically mean lower premiums.
• Discounts: Insurers in these states often emphasize discounts related to safe driving habits, good student status, multi-car policies, bundling with other insurance types (like homeowners), and vehicle safety features.

Example Scenario:

Consider two individuals, Emily and David, both living in Massachusetts, a state that bans credit scoring for auto insurance.

• Emily: Has a clean driving record, drives 10,000 miles per year, owns a moderately priced sedan with good safety ratings, and is in her late 30s.
• David: Has had two speeding tickets in the last three years, drives 15,000 miles per year, owns a sports car with a higher theft risk, and is also in his late 30s.

When Emily and David shop for auto insurance in Massachusetts, their premiums will be determined primarily by these factors. Emily, with her superior driving record, lower mileage, and less risky vehicle, will undoubtedly receive significantly lower quotes than David, whose record and choices indicate a higher risk profile. David might explore options like increasing his deductible or looking for discounts related to defensive driving courses to try and lower his premium.

Advantages and Disadvantages:

• Advantage: For individuals with poor credit or those who have experienced financial hardship, living in a state that bans credit scoring can be a significant financial relief. Their premiums are not penalized for factors unrelated to their driving ability.
• Disadvantage: For individuals with excellent credit who are also safe drivers, they might not receive the additional discount that good credit could potentially offer in states where it's used. However, the focus on driving behavior ensures that premiums are more directly tied to the core purpose of auto insurance: covering risks associated with operating a vehicle.

If you're unsure whether your state permits credit scoring, you can check with your state's Department of Insurance or conduct research specific to your state's regulations. Understanding these rules is crucial for effectively shopping for auto insurance and ensuring you're getting the most accurate and fair rates based on the factors that matter most in your location.

Shopping for Auto Insurance with Your Credit in Mind

Navigating the auto insurance market can be complex, and understanding how your credit history plays a role is a crucial part of getting the best possible rates. If you live in a state where credit scoring is permitted, being mindful of your credit-based insurance score can lead to significant savings. Even if you live in a state that bans credit scoring, understanding the general principles of risk assessment can help you make more informed choices.

Here’s a strategic approach to shopping for auto insurance, keeping credit in mind:

1. Know Your State's Regulations: The first step is to determine if your state allows auto insurance companies to use credit-based insurance scores. If it does, your credit health becomes a more direct factor in your premiums. If it doesn't, you can focus your efforts on other rating factors.
2. Check Your Credit Report: Before you start shopping, obtain copies of your credit reports from the three major bureaus (Equifax, Experian, TransUnion) via AnnualCreditReport.com. Review them for accuracy and identify any areas for improvement, such as late payments or high credit card balances.
3. Understand What Impacts Your Insurance Score: As discussed, payment history and credit utilization are key. Focus on these areas for improvement. Even small changes can make a difference over time.
4. Get Quotes from Multiple Insurers: This is perhaps the most important step in shopping for any insurance. Prices can vary dramatically between companies for the same coverage. Obtain quotes from at least 3-5 different insurers.
5. Be Consistent with Information: When getting quotes, provide identical information to each insurer. This includes your driving record details, vehicle information, mileage, and any requested personal data. Inconsistencies can lead to inaccurate quotes.
6. Ask About Discounts: Always inquire about all available discounts. This can include safe driver discounts, good student discounts, multi-policy discounts, low mileage discounts, and vehicle safety feature discounts. Some insurers may also offer discounts for good credit, even if it's not the primary rating factor.
7. Consider the Underwriting Process: If you're in a state that uses credit scoring, understand that each insurer has its own proprietary model. One insurer might be more lenient with certain credit issues than another. This is why getting multiple quotes is so vital – you might find a company that offers you a better rate despite a less-than-perfect credit history.
8. Don't Assume Your FICO Score is Your Insurance Score: Remember that your credit-based insurance score is different from your FICO score. While improving your FICO score generally helps your insurance score, they are not the same.
9. Shop Around Periodically: Don't just set it and forget it. Auto insurance rates can change, and your circumstances might evolve. It's generally recommended to shop for new quotes at least once a year or when you experience a significant life event (like moving, buying a new car, or having a change in your driving record).
10. Be Wary of "Instant Quotes": While convenient, instant online quotes are often estimates. A final premium can change after the insurer performs a more thorough underwriting, which may include pulling your credit report (if applicable).

Example Scenario:

Let's say Sarah lives in Florida, a state where credit scoring is permitted. She has a decent driving record but knows her credit score isn't stellar due to past student loan struggles. She needs to buy new auto insurance.

• Step 1: She checks her credit report and sees a few late payments from years ago and a moderate credit utilization.
• Step 2: She decides to focus on paying down her credit card balances before shopping.
• Step 3: She gets quotes from five different insurance companies.
• Step 4: One insurer, "Company A," gives her a quote that is significantly higher than the others. She suspects it might be due to her credit.
• Step 5: Another insurer, "Company B," offers a competitive rate, suggesting they might weigh credit differently or offer better discounts.
• Step 6: A third insurer, "Company C," offers a mid-range quote but highlights a "safe driver" discount she qualifies for.

Sarah compares the quotes carefully, factoring in coverage levels, deductibles, and available discounts. She realizes that while her credit might be a factor, the combination of coverage and discounts offered by "Company B" provides the best overall value for her situation. She also notes that if her credit improves significantly in the future, she might be able to get even better rates by shopping again.

By taking a proactive and informed approach, consumers can effectively navigate the auto insurance market, leverage their creditworthiness (or mitigate its impact), and secure the most suitable and affordable coverage available.

Conclusion

In conclusion, the question "Do auto insurance companies run your credit?" is answered with a resounding "yes" in most of the United States. This practice, utilizing a credit-based insurance score, has a significant impact on the premiums drivers pay. While the exact algorithms vary, insurers generally believe that credit history is a reliable predictor of insurance risk. Key factors like payment history and credit utilization are heavily weighted, meaning responsible financial management can lead to lower auto insurance costs.

It's vital to remember that state laws dictate the extent to which credit scoring is permitted. While states like California and Michigan have banned its use, the majority of states still allow it, making credit health a crucial consideration for many consumers. Understanding these regulations in your specific location is the first step in effectively shopping for auto insurance.

Our advice is clear: if you live in a state where credit scoring is used, take proactive steps to improve your credit. Pay bills on time, reduce credit card balances, and monitor your credit reports for errors. These actions not only benefit your overall financial health but can directly translate into tangible savings on your auto insurance premiums. Even if your credit isn't perfect, shopping around and comparing quotes from multiple insurers can help you find a provider whose underwriting practices and discount offerings best suit your circumstances. By staying informed and managing your credit wisely, you can secure more affordable and appropriate auto insurance coverage.