When most people think about their credit score, they immediately associate it with credit cards, loans, or missed payments. What many don’t realize is that insurance companies also play a role in your financial profile. While insurance policies themselves don’t directly affect your credit score, the way insurers evaluate your credit information—and how you manage your payments—can significantly impact your credit standing.
In this article, we’ll break down the connection between insurance policies and credit scores, how credit-based insurance scores are used, and what you can do to protect or improve your credit when managing your insurance accounts.
Understanding Credit Scores: A Quick Overview
A credit score is a three-digit number that represents your creditworthiness. Ranging typically from 300 to 850, this score is calculated based on several factors, including:
- Payment history
- Credit utilization
- Length of credit history
- Types of credit
- Recent inquiries
Lenders use this score to determine whether you’re a reliable borrower. A higher score often leads to better loan terms, lower interest rates, and broader financial opportunities.
Credit-Based Insurance Scores: What Are They?
How Insurers Use Credit Information
Many people are surprised to learn that insurance companies use your credit information—not to approve or deny a loan, but to help determine your insurance premiums. This process is called a credit-based insurance score.
While it’s different from a traditional credit score, it uses similar data to predict how likely you are to file a claim or miss a payment on your insurance premium. Studies have shown a correlation between lower credit scores and higher insurance claims, which is why insurers factor in credit data.
What’s Included in a Credit-Based Insurance Score?
Credit-based insurance scores are calculated using information from your credit report, including:
- Outstanding debt
- Length of credit history
- Payment patterns
- Types of credit used
- Number of recent applications for credit
However, they typically do not include:
- Income
- Employment history
- Race, gender, or marital status
- Age or religion
Does Buying Insurance Affect Your Credit Score?1. Insurance Inquiries: Do They Lower Your Score?
When an insurance company checks your credit to generate a quote, it usually performs a soft inquiry—which does not impact your credit score. Soft inquiries differ from hard inquiries (which are used when you apply for a credit card or loan) and are not visible to other lenders.
That means shopping for insurance quotes will not hurt your credit score, even if multiple companies run a credit check.
2. Payment History on Insurance Premiums
Although your insurance premiums don’t get reported to credit bureaus the same way loan or credit card payments do, missed or late payments can end up on your credit report if your account is sent to collections. This happens if you:
- Cancel your policy early without paying the fees
- Miss monthly premium payments
- Default on an agreed payment plan
Once an insurance debt is sent to a collections agency, it becomes a negative mark on your credit report and can lower your score significantly.
How Non-Payment of Insurance Can Impact Your Credit
Many consumers assume that missing an insurance payment is no big deal—after all, it’s not a loan. But if left unpaid, the insurer may cancel your policy and refer the debt to collections. This affects your credit just like a missed loan payment would.
Here are some consequences of non-payment:
- Lower credit score
- Difficulty securing future insurance coverage
- Higher premiums due to perceived risk
- Legal action in some cases
To avoid this, it’s important to stay on top of your insurance bills or set up automatic payments.
Why Good Credit Means Lower Insurance Premiums
Just as a high credit score gets you better interest rates on loans, it can also lead to lower car, home, or renters insurance premiums. Insurance companies see a strong credit history as a sign of reliability and financial responsibility, which means you’re less likely to file costly claims or miss payments.
In contrast, a low credit score could cause you to pay more for the same coverage as someone with a higher score. In fact, in some states, a person with poor credit could pay up to twice as much for auto insurance as someone with excellent credit—even if they have a perfect driving record.
States That Restrict Credit-Based Insurance Scoring
Not all states allow insurance companies to use credit information to set premiums. Some have restricted or banned the practice entirely. For example:
- California, Hawaii, and Massachusetts prohibit the use of credit-based insurance scores for auto insurance.
- Other states may have laws limiting how credit data is used or requiring insurers to notify customers when credit affects their premiums.
Before applying for insurance, it’s a good idea to check your state laws or speak with a licensed agent who can explain the rules in your area.
How to Protect Your Credit While Managing Insurance
Here are a few practical tips to ensure your insurance activity doesn’t harm your credit:
1. Pay Premiums On Time
Set reminders or use auto-pay to avoid missing payments and risk being sent to collections.
2. Review Policy Terms Carefully
Make sure you understand cancellation fees, billing schedules, and penalties for late payments.
3. Keep Your Credit Score Healthy
Pay bills on time, limit your credit card balances, and avoid too many hard inquiries.
4. Check Your Credit Report Regularly
Mistakes happen. Make sure no insurance-related collections have been reported in error. You’re entitled to a free credit report every 12 months from each of the three major bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com.
5. Ask Your Insurer About Credit Use
When shopping for insurance, ask if and how they use credit scores. This helps you make informed decisions about where to get coverage.
Conclusion: Credit and Insurance—A Hidden Connection
While insurance policies don’t directly appear on your credit report, they interact with your credit in significant ways. From determining your premiums to affecting your score through unpaid bills, insurance companies rely on your credit history to assess risk.
Understanding how insurance and credit are connected can help you make smarter financial decisions, avoid unnecessary costs, and maintain a healthy credit profile. By managing both wisely, you can not only protect your wallet today but also ensure a more secure financial future.