Does Your Credit Affect Your Car Insurance Rate?

People are often surprised that a car insurance quote has anything to do with their credit, and it is a reasonable thing to be surprised by — you are buying protection against a collision, not borrowing money. But the Federal Trade Commission is direct about it: cellphone companies and companies selling auto and home insurance also use credit scores. Understanding what is actually being used, and what it can and cannot do, is more useful than being annoyed about it.

It Is Not the Same Score a Lender Uses

This is the part that causes most of the confusion. According to the FTC, some insurance companies also use credit report information to help decide whether to give you insurance and what premium they will charge — and the credit scores used by insurance companies are sometimes called insurance scores or credit-based insurance scores.

So it is built from your credit report, but it is not the number a lender quotes you when you apply to refinance a car. Two different companies can look at the same report and produce different numbers for different purposes. Knowing your lending score tells you something useful about your insurance score, but it does not tell you what it is.

What It Can Actually Change

The FTC's wording covers both halves: whether to give you insurance at all, and what premium they will charge. It is not only a pricing input. That is worth knowing because it means a thin or damaged credit file can affect availability, not just cost, and availability is the half people do not anticipate.

Your Right to Know Why

This is the actionable part, and it is the reason this is worth more than a definition. If a business denies your application for credit or insurance, or offers you less favorable terms, because of information in your credit report, federal law requires that business to give you a notice — and that notice has to include the name, address, and phone number of the credit bureau that supplied the information.

The notice must also include your credit score, if your score was a factor in the decision to deny you or to offer you terms less favorable than most other customers get. So the answer to “why is my quote so high” is not something you have to guess at or accept — where a report was the reason, you are entitled to be told, and to be told which bureau's file was used.

That last detail matters more than it looks. Knowing which bureau supplied the file tells you exactly which report to pull and check, rather than checking all three and hoping. If what you find there is wrong, correcting it is free and it is a job you can do yourself.

What Actually Moves It

The FTC's advice for improving a credit score is short, and it is the same advice whether the score is being read by a lender or an insurer. Improving a score by a lot will probably take time, but under most scoring systems it can be done by focusing on three things.

• Paying your bills on time. Late payments, an account put in collections, or a bankruptcy on your report are all likely to affect a score negatively.
• Paying down outstanding balances. Many scoring systems compare what you owe against your credit limits, and owing close to the limit will probably hurt.
• Avoiding opening several new accounts at the same time.

Notice what is not on that list: paying anyone to fix it. Nothing about an insurance score responds to a service that a person cannot do for themselves, and the same warning signs apply here as anywhere else in credit.

Why This Comes Up When You Refinance

Refinancing a car loan and shopping insurance land in the same week more often than people expect, because a new lender has its own coverage requirements and the policy usually has to be updated to name it. If you are already going to be talking to an insurer, it is a sensible moment to ask what they used and whether a better report would change the number.

RefiSolutions is a free matching service. We are not an insurance company, we do not calculate insurance scores and we cannot tell you what any insurer used to price your policy — that comes from the insurer, and from the notice they are required to send you if a report was the reason. What we can do is put you in front of licensed agents who will quote the coverage you actually need.