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November 25, 2019

Your credit score matters, but we care more about your driving 

If you’re having trouble getting an affordable rate on your car insurance—or maybe even getting rejected entirely—it might be your credit score. 

You could be a teen driver who doesn’t have a credit card or loan history. Or maybe you’ve avoided getting a credit card because you’re careful with your money and would rather pay in cash. Whatever your situation, your credit score is a big part of how traditional insurance companies determine your rate. 

The good news is there are still ways to improve your score and find affordable car insurance. Even better news, Root Insurance bases your car insurance rate primarily on how you drive— and not as much on your credit score—because we think it’s fair for your good driving to earn you a better price. 

What’s more, we’re committed to removing credit score from our rates entirely—and we’re working hard to encourage the industry to move with us.

So if you’re a good driver, Root might be a great fit for you. In the meantime, here are some of the best ways to improve your score, just in case.

What is a credit score?

Your credit score is a number between 300-850—also known as a FICO score—that shows lenders you’re reliable with money and in paying off debts. 

When you have a high credit score, it shows that you’re consistently paying bills on time and usually in full, so lenders feel they 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.

If you have a low credit score or no credit score, it’s usually because you missed a few bill payments, haven’t always paid 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 be offered high interest rates on loans or could be rejected entirely when shopping for things like car insurance.

What factors make up your credit score?

To understand how you can improve your credit score, it’s important to know what factors into it.

How FICO calculates your score:

  • Payment history (35% of your credit score): Do you pay bills on time? This includes credit cards, loans, mortgage payments or other credit history, rather than your monthly utility bills. 

  • Amounts owed (30% of your score): This is less about how many loans you have, and more about 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 might see you as a high-risk borrower—which lowers your credit score. 

  • Length of credit history (15% of your score): Having credit accounts open for a long period of time can help boost your credit score. FICO looks at when you opened your oldest and newest accounts, and how long it’s been since you’ve used them. 

  • Credit mix (10% of your score): This involves the kind of credit accounts you have under your name, whether they be credit cards, retail accounts, mortgage loans, or car loans. You don’t need to have each to boost your score, but if you have bad or little credit, this category can help tell your credit story.

  • New credit (10% of your score): Opening too many credit accounts in a short period of time can negatively impact your score. This category also tracks how many times lenders request (pull) your credit score. If you have too many hard inquiries in a short period of time—such as when applying for credit cards or a mortgage—your score could go down. 

When you’re shopping for car insurance, most companies will look to see if you have good, bad, or no credit. This is called a soft inquiry and won’t negatively impact your credit. Learn more about FICO credit inquiries.

Why do car insurance companies use your credit score?

Although you’re not borrowing money from a car insurance company, your credit score is usually required to get car insurance. Your credit impacts your auto insurance score, which, along with 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, you might be offered a higher insurance rate. 

Your credit-based insurance score is influenced by:

  • Accidents on your record

  • Recent claims history

  • Your overall credit score

If you live in California, New Hampshire, or Massachusetts, car insurance companies cannot use credit score to price premiums due to state laws. So, if you live in one of these states, having a low credit score won’t impact your car insurance.

How can you improve your credit score?

It might take some time, but there are things you can do now to start building or improving your score. 

  1. Pay bills by their due date. Late payments can be the downfall of a good credit score. If this applies to you, try making a calendar with due dates for bills and loan payments highlighted. Or even better, set up automatic payments from your bank account or use an app to track your bills.

  2. Don’t hit your card limits. The amounts owed category makes up 30% of your credit score. You can help improve a low score by looking at your credit utilization ratio. As Experian explains, if you have a $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—but don’t apply for multiple cards at once. If you don’t have a line of credit, yet, you might be thinking of applying for as many cards as you can. 

But, it can actually hurt your credit score when you apply for too many credit cards in a short period of time. This is because applications require hard inquiries made by lenders checking your score. A lot of hard inquiries could impact your credit negatively. 

If this will be your first credit card, your application might not be accepted until you’ve built your credit. In that case, apply for a secured credit card

It’s the same as a standard credit card but requires a cash deposit with your application. Most banks offer secured credit cards, although they might have lower credit limits than major credit cards. They still report to the three major credit bureaus (Equifax, Experian, and TransUnion), however, and can help you build your credit. Once you decide to transition to a non-secured credit card, most companies will give you your cash deposit back.

Or, start out as an authorized user: If you’re not ready for your own credit card, yet, consider asking a family member with good credit to add you as an authorized user on their card. This will help build your credit, but remember, any missed payments or high balances could negatively impact both of you. 

At Root, how you drive is more important than your credit score 

Until you can build or improve your credit score, you might feel like affordable car insurance is out of reach.

At Root, the No.1 factor in determining your car insurance rate is your test drive score

When you take the Root test drive, our app measures your day-to-day driving behaviors. From that data, we calculate your individual driving score. This score is the main factor that decides your car insurance rate.

So, Root bases your rate primarily on how you drive, not solely on your demographics and credit score. While credit scores do play a relatively small role in our current pricing model, we don’t account for them at anywhere near the industry average. We don’t think it’s fair that a good driver should pay more for car insurance. 

In fact, we’re committed to dropping credit score from our rates entirely by 2025

Your driving should be the first indicator of your likelihood of getting into an accident. And we believe those driving skills should be the primary factor in determining your rate.

Download the Root app to easily compare rates and coverages. You could save hundreds on your car insurance annually. 

Visit here to learn more about why Root is dropping credit score from our pricing model.

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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