Does Credit Affect Car Insurance?

How Bankruptcy and Poor Credit Impacts Auto Insurance

A couple review paperwork and a laptop, looking concerned

Tetra Images / Getty Images

In states where credit-based insurance is allowed, an estimated 95% of auto insurers use credit as one of the factors in their risk classification process. While you might feel that your credit score has nothing to do with your driving, insurance companies have found that drivers with bad credit are much more likely to file claims than those with good credit. That’s one reason insurers typically charge higher car insurance premiums when drivers have filed for bankruptcy and have low credit scores. 

Learn more about how credit affects car insurance premiums and how to minimize your costs after filing for bankruptcy.

Key Takeaways

  • In many states, insurers are allowed to use your credit as a factor when determining your premium.
  • Filing for bankruptcy hurts your credit, which means your car insurance rates will likely increase when you renew your policy (if you live in a state where insurers are allowed to consider credit).
  • Taking steps to rebuild your credit can help you improve your score and eventually reduce your car insurance rates.

How Credit Affects Car Insurance Premiums

Many studies have found that drivers with poor credit file insurance claims more frequently than drivers with good credit. As a result, most insurers now do a quick credit check when figuring out what to charge a new applicant. The higher your score, the less you can expect to pay for coverage. However, not all states approve of credit being a factor in the application process, so be sure to check the laws where you live. 


Several states limit how and if credit can be used when setting car insurance rates including California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, and Utah. In California, Hawaii, and Massachusetts, credit-based auto insurance underwriting is banned altogether.

How To Get the Best Rates After Declaring Bankruptcy

If you’ve recently declared bankruptcy, you’ll likely see your auto insurance premium increase when your policy renews. However, once you know your new rate, you can shop around and compare it against quotes from other insurers to find the best deal. 


Instead of getting quotes from just any car insurance company, start with those known for insuring drivers considered high-risk.

The good news is that you likely will not have your auto insurance policy canceled solely because you filed for bankruptcy. Policies can only be canceled based on the terms in your contract, so be sure to read them carefully. If you continue to pay your premiums on time and stay accident-free, you could potentially see your rates decline within a few years.

Credit Scores vs. Insurance Credit Ratings

You may be surprised to learn that an insurance company doesn’t determine your rates using the same credit score that a lender would use to approve you for a loan. While the two types of credit scores are based on the same data, insurance companies look at a credit-based insurance score instead of the standard FICO or VantageScore. 

Here’s a closer look at the differences between traditional credit scores and credit-based insurance scores.

  Credit-Based Insurance Scores  Traditional Credit Scores
 Purpose  To predict a person's likelihood of filing an insurance claim To access the amount of risk a borrower presents to lenders
 Examples  LexisNexis Attract score, FICO insurance score FICO, VantageScore
 Score Ranges  150 t0 997, depending on the score Typically 300 to 850
 Do Consumers Have Access?  No No
 Factors  Payment history, debt management, credit inquiries, credit mix, credit history Payment history, debt management, credit inquiries, credit mix, credit history

Rebuilding Your Credit After Bankruptcy

Filing for bankruptcy basically puts you at the bottom of the credit-rating ladder. You’ll have to start over to restore your credit reputation. That said, here are a few ways you can help the recovery process along. 


A Chapter 7 bankruptcy will stay on your credit report for 10 years, while a Chapter 13 bankruptcy will show up for seven years.

Seek Credit Counseling

If you’re not enrolled in a mandatory court-appointed credit counseling course after filing for bankruptcy, it can be helpful to seek out free or low-cost credit counseling services such as those from the National Foundation for Credit Counseling. Doing so can help to ensure you have the knowledge and support you need to rebuild your credit as quickly as possible. 

Review Your Credit Reports

It’s important to fully understand your starting point. To see where your credit is at, review your credit reports from the three main bureaus: Transunion, Experian, and Equifax. You can get one free credit report per year from each bureau. Take note of any negative items on your report and ensure all the information is correct. If you spot any issues, you can dispute the errors and get them fixed.


You can get one free credit report per week from Equifax, TransUnion, and Experian through December 2023 at

Pay All Bills on Time

The most important factor in your traditional credit score is your payment history, which accounts for 35% of your FICO score. While it’s not clear exactly how much of your credit-based insurance score is determined by your payment history, it’s safe to say that missing or late payments certainly won’t help. To help improve your score, make sure to pay all your bills on time. 

Become an Authorized User on a Credit Card

While you may have trouble getting approved for a credit card on your own, someone else may be able to add you to their credit card account as an authorized user. The person should be someone you trust, who also trusts you—for example, a partner or parent.

To help you rebuild your credit, this person will need to have good credit themselves, manage their card well, and make all their payments on time. You can ride along and reap the benefits of a positive credit line on your credit reports. 


Not all credit issuers report authorized user activity to credit agencies. Since that reporting is essential to this strategy, the account holder should check with the issuer before adding you as an authorized user. 

Get a Secured Credit Card

Another way to rebuild your credit is by obtaining a secured credit card, which is backed by a security deposit you put down when you open the account. You may start off with a low limit, such as $300. But as you make your payments on time, the credit card company will report them to the credit bureaus, which will help improve your credit score over time. 


A good place to start is to compare the best credit cards after bankruptcy. 

Keep Your Credit Utilization Down

If you open revolving credit lines, it’s important to keep an eye on your credit utilization rate. Credit utilization refers to the percentage of available credit that you’ve used. For example, if you have a $500 credit line and have used $250, you would have a 50% credit utilization rate. The higher your credit utilization, the lower your credit score will be. 

It’s best to pay off your credit cards in full each month to avoid paying interest and boost your score. However, if you do need to carry a balance, try to keep it at 30% or less of your credit limit. 

The Bottom Line

People who have the best driving records and the best credit scores will get the best auto insurance rates. However, if your driving record or credit history isn’t great, it doesn’t mean you’re doomed to pay higher premiums forever. As bankruptcies age and eventually drop off your credit report, and as you drive safely without any accidents or tickets, you will see your car insurance costs drop

In the meantime, you may be able to take advantage of car insurance discounts such as those you get from bundling policies, setting up autopay, or being a member of educational or professional organizations. 

Frequently Asked Questions (FAQs)

Why does credit affect car insurance?

A person’s credit has been shown in various studies to correlate with their likelihood to file an insurance claim. The more risk a driver presents, the higher their auto insurance premium, and vice versa. 

How much does credit affect car insurance?

If an insurance company checks your credit and uses your score as a factor when determining your premium, it can play a large role. For example, a Forbes Advisor analysis found that poor credit increased rates by an average of 76% annually, compared to a 41% average increase for an at-fault car accident.

How does canceling car Insurance affect your credit?

Car insurance is not a line of credit or a credit product. While insurance companies may check your credit-based insurance score to assess the risk you present to their bottom line, your insurance policy won’t be reported on your credit report. That means canceling a car insurance policy won’t affect your credit report or score.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. myFICO. “Do Insurance Companies Use Credit Data?

  2. Bureau of Business Research. “A Statistical Analysis of the Relationship Between Credit History and Insurance Losses,” Pages 1 and 10.

  3. Experian. “Which States Restrict the Use of Credit Scores in Determining Insurance Rates?

  4. LexisNexis Risk Solutions. “What Is the Score Range for my ATTRACT TM Insurance Score?"

  5. Experian. “What Is the Difference Between Credit-Based Insurance Scores and Credit Scores?

  6. TransUnion. “How Long Does Bankruptcy Stay on Your Credit Report?

  7. PR Newswire. "Equifax, Experian and TransUnion Extend Free Weekly Credit Reports in the U.S. Through 2023."

  8. Experian. “What Affects Your Credit Scores?"

  9. Forbes Advisor. “How Much Do Car Insurance Rates go up Because of Poor Credit?

Related Articles