Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Sep 27, 2020

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Key takeaways...

  • Auto insurance carriers have a special formula that’s used to set individualized rates for each person who applies
  • One rating factor that can be used in most states is the person’s credit-based insurance score
  • Credit can be used because research shows that it has an impact on whether or not someone will file a claim
  • People with good credit tend to be more financially responsible and are likely to pay for their own repairs
  • If an applicant has a low credit score, it could lead to a high-risk driver class that raises their rates

Having bad credit can affect you in more ways than one. Many people who aren’t familiar with credit think that being delinquent on their bills will only affect their ability to find loans in the future.

While this is the case, having a low credit score can do more than just affect your creditworthiness, it can affect your ability to move to a new apartment, get a new job, and even get insurance.

If you’re on a mission to find low-cost auto insurance, you need to be prepared to deal with the possibility that your credit could be a factor in determining your rates. If you have good credit, this possibility is a good thing.

Enter your zip code above to find car insurance rates that work for you! If you have a low credit score and several defaults, however, you’re not so lucky. Here’s how a bad credit rating affects insurance:

Why do auto insurance rates vary from person to person?


Auto insurance isn’t one of those products that you can buy from your local grocery store or big-box retailer. You can’t pick a package based on the price tag, place it in your cart, and check out because every applicant pays a different rate.

Insurance policies are priced for each individual who applies because everyone is a different risk.

If you have a clean driving record and someone else who drives the same car as you have a DUI and 2 at-fault accidents, you probably wouldn’t want to pay the same rates as that driver.

Since you’re considered less likely to have an accident, the carrier will assign lower rates to your policy than the other driver. Without personalized ratings, it’d be impossible for a company to charge their clients the right rates to stay profitable.

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How do auto insurance companies personalize an applicant’s rates?

Insurance carriers do a great deal of research to set their rates.

Actuaries who work for the company look at the market, look at claims trends, look at demographics, and create base rates.

After all of this is done, the company will decide how much each personal factor will affect the base rate.

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what are some of the most common personal rating factors used?

Every rating factor that a company uses is believed to change the household’s likelihood to file a claim. Some of the factors used are obvious and others can actually surprise you.

If you’re interested in knowing how a company sets your personal rates, here’s what they are typically looking at:

  • Your age and genderYounger drivers pay more because they have more losses. Males pay more than women in most age groups
  • Your marital status – If you’re married, you may pay a lower rate. Especially if you’re in a high-risk rating group as a male
  • Your driving experience – How long you’ve been licensed can place you in a high-risk class. Typically drivers with less than 9 years of experience pay higher rates
  • Your vehicle – If your car costs a lot to repair, has fewer safety features or causes a lot of damage to other cars, it will cost more to insure
  • Your driving habits – How often you drive, if you commute, and how many miles you drive annually can all affect your rates
  • Your driving record – If you have minor or major infractions on your record you can be surcharged or lose discounts for being a good driver
  • Your accident history – If you have at-fault accidents in the last 3 years it will affect your rates
  • Your insurance history – Having a lapse in insurance can put you in a high-risk class. Prior insurance may qualify you for discounts
  • Your occupation – Some companies give credits to professionals and students
  • You coverage options – The coverage options and limits you choose will affect rates
  • Your credit – Some carriers will use details from your credit report to place you in a risk classification

Do all companies use credit when setting your rates?


Most officials have ruled that using credit to set rates is a fair practice. There are still a few states where using credit is prohibited. The states that have prohibits the practice for being discriminatory include California, Hawaii, and Massachusetts.

Just because using credit is allowed in some states doesn’t necessarily mean that your credit report will be run.

There are still carriers that won’t use your score when rating your policy for their own reasons. Some don’t want to spend the money on the reports and others feel the practice would negatively impact their target market.

You should check with your state to see if any carriers don’t use credit.

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Why do some companies use credit to set your rates?

Credit is used to set a price because there’s believed to be a correlation between a person’s creditworthiness and their probability of filing a claim.

If someone has a lot of late payments or they are in default on loans, they’re more likely to file a claim for even very small losses.

What is considered on your credit report?

It’s not your actual credit score that’s used to set your rates. What insurance companies use is an insurance score that includes some information from your credit. Other information is left out because it’s considered discriminatory.

Here is a list of what the carrier is looking for:

  • Payment history
  • Outstanding debt
  • Credit length
  • New credit
  • Credit mix

You can always get insurance with a bad credit rating but your premiums may be higher than the average consumer. If you have bad credit, the best way to find a good deal is to shop around. Get instant quotes online right now and discover how much you’ll pay for coverage.

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