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You’re in the market for car insurance, but you’re having trouble getting an affordable rate (or maybe even getting rejected entirely) because of your credit score. Maybe you’re a teen driver looking for insurance so you don’t have a credit card or any loan history. Or maybe you’re responsible with your money and would rather pay cash, avoiding the temptation of buying more than you can afford with credit cards. Either way, your credit score isn’t stellar in the eyes of lenders and you’re left wondering how you’re going to get an auto insurance rate that doesn’t break the bank.

Even without a good credit score, there are still ways to improve this pesky number and get affordable car insurance. If you didn’t know, Root bases auto insurance rates primarily on how you drive (not your credit score). So if you’re a good driver, Root may be the best option for you.

Let’s dive into credit scores, why they’re important for most auto insurance companies, and some of the best ways to improve a bad or low credit score.

Credit Score

What is a credit score?

Your credit score is a number between 300-850 (you may also know it as a FICO score) that shows lenders you’re reliable with money and paying off debts. When you have a high credit score, it shows that you’re consistently paying bills on time (usually in full) and lenders can trust you with their money. A higher score also means you have a greater chance of getting a competitive, low interest rate when you apply for a mortgage or car loan.

On the other hand, if you have a low, bad, or no credit score, it’s because you missed a few bill payments, aren’t paying your balances in full, have too much revolving debt with a credit card, or don’t have a line of credit. Until you’re able to improve your credit score, you’ll likely see high interest rates on loans or may be rejected completely, even when buying car insurance.

What factors make up a credit score - pie chart

What factors make up a credit score?

If you’re looking to improve your credit score, it’s important to know what factors into your number. Here’s how FICO calculates your score:

  • Payment history: Are you paying your bills on time? This is looking into credit cards, loans, mortgage payments or other credit history rather than your monthly utility bills. Payment history makes up 35% of your score.
  • Amounts owed: This is less about how many loans you have, but how much of your total available credit you’re using. If you owe a lot of money on your loans and you’re maxing out your credit cards every month, lenders may see you as a high-risk borrower—which is bad for your credit score. Amounts owed makes up 30% of your score.
  • Length of credit history: Having credit accounts open for a long period of time can help boost your credit score. FICO looks into the age of your oldest and newest accounts, including how long it’s been since they were used. Length of credit history makes up 15% of your score.
  • Credit mix: What kind of credit accounts are under your name? Think about credit cards, retail accounts, mortgage loans, and car loans. You don’t need to have one of each to boost your score, but if you have bad or no credit, this category can help tell your story. Credit mix makes up 10% of your score.
  • New credit: If you’re opening too many credit accounts in a short period of time, this can negatively impact your score. This category also looks into how many times lenders have requested (or “pulled”) your credit score. If you have too many hard inquiries in a short period of time (applying for credit cards or a mortgage), your score could go down. New credit makes up 10% of your score.

If you’re in the market for car insurance, most companies will look to see if you have good, bad, or no credit. However, this is a soft inquiry and won’t negatively impact your credit. Learn more about FICO credit inquiries.

Why do insurance companies need my credit score?

You’re not borrowing money from a car insurance company when buying auto insurance, but your credit score is still sometimes needed to get insurance. Your credit impacts your auto insurance score, which (among other factors) can be used to determine your rate.

Auto insurance scores, also known as credit-based insurance scores, help insurance companies determine your likelihood of getting into an accident. If you’re considered a higher risk of getting into accidents, you may see a higher insurance rate. Your score is influenced by:

  • Accidents on your record
  • Recent claims history
  • Your overall credit score

Heads up: If you live in California, New Hampshire, or Massachusetts, because of state laws, car insurance companies do not use credit score to price premiums. So if you live in one of these states, having a bad credit score won’t impact your auto insurance.

Credit score graph - increasing trend

How can I improve my credit score?

It may take some time to start building credit or improve a bad credit score, but there are a few steps you can take:

1. Pay your bills (when they’re due).
Late payments can be the downfall of a good credit score. Make a calendar with the due dates for your bills and loan payments. If you’d rather not worry about due dates, set up automatic payments from your bank account or use an app to help you track everything.

2. Don’t reach your limits.
Remember, the amounts owed category makes up 30% of your credit score. You can help improve a bad credit score by looking at your credit utilization ratio. As Experian explains, if you have $10,000 limit on your credit card and charge $2,000 a month, you’re using 20% of your utilization ratio. If you keep that ratio to under 30%, it could help improve your credit.

3. Get a starter credit card.
If you don’t have a line of credit, your first reaction may be to apply for as many cards as you can. It can actually hurt your credit score if you have too many credit card applications in a short period of time (because of the hard inquiries made by lenders checking your score). And if this is your first credit card, your application may not be accepted until you can build your credit.

In this case, apply for a secured credit card. It’s the same as a credit card, but you put down a cash deposit with your application. Most banks offer secured credit cards, but may have lower credit limits compared to major credit cards. However, they still report to the three major credit bureaus (Equifax, Experian, and TransUnion) and can help you build credit. Once you decide to transition to a non-secured credit card, most companies will give you the cash deposit back.

If you’re not ready for your own card, you can ask a family member (with good credit) to add you as an authorized user on their credit card. It’ll help build your credit, but any missed payments on the card or high balances could negatively impact both of you. So, spend—and pay—wisely.

Buying car insurance with Root

Now that you know more about credit and how to improve, let’s focus back on buying car insurance coverage. If you’re still trying to build or improve your credit score, you may feel like an affordable auto insurance rate is beyond your reach.

Root bases your car insurance rate primarily on how you drive, not solely on your demographics (including your credit score). While credit does play a factor in most states, we don’t think it’s fair that a good driver should pay more for car insurance. Your driving should be the first indicator of your likelihood of getting into an accident. And those driving skills should be the primary factor in determining your rate.

Download the Root app and see how much you could save. Our customers see savings of up to 52% compared to their previous insurance rates.

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Not available in all states. Root does not endorse any third-party content. We do not guarantee the accuracy or completeness of the information provided. The information contained in this Root blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation.

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