The Role of Credit Score in Car Insurance Premiums

If you’ve ever sat at your kitchen table with a cup of coffee, staring at your car insurance renewal, you’ve probably asked yourself: “Why on earth is this so expensive?” Maybe you thought it was just your driving record, the type of car you own, or even where you live. But then you stumbled upon another piece of the puzzle—the infamous credit score—and suddenly it felt like you were being judged not just on your driving but on how you handle your wallet.

I remember the first time I heard about this connection. A friend told me her insurer raised her premiums because of her “financial profile.” She was baffled. “Wait, they don’t care that I’ve never had a speeding ticket, but they care about my Visa balance?” she said. That stuck with me, because it feels almost unfair at first glance. Yet, like many things in the financial world, the truth is layered, complicated, and sometimes a little uncomfortable.

So, let’s pull back the curtain on the role of credit scores in car insurance premiums. And let’s do it in plain English—without the industry jargon—because this topic can feel like alphabet soup if you’re not careful.

Why Credit Scores Even Matter to Insurers

Here’s the logic insurers use: people with lower credit scores, statistically, are more likely to file claims. It doesn’t mean everyone with a less-than-stellar score will crash into the neighbor’s fence, but the data suggests there’s a link. Insurance companies are in the business of predicting risk, and if numbers tell them a certain group is riskier, they’re going to price policies accordingly.

Now, whether that’s fair is a whole different conversation. Critics often argue that using credit scores in this way penalizes people twice: once for struggling financially and again when they try to protect themselves with insurance. Proponents, on the other hand, argue that credit-based scoring helps insurers keep costs lower for “lower-risk” drivers.

It’s a classic tension—efficiency versus fairness.

What Exactly Is a “Credit-Based Insurance Score”?

You’ve probably heard of the three-digit credit score lenders use (like FICO). But insurers often use something a little different: a credit-based insurance score. It’s not identical to the number you see when you check your credit app. Instead, it’s calculated using factors that insurers believe correlate with claims risk.

For instance:

Payment history (are bills paid on time?)

Outstanding debt (how much you owe compared to available credit)

Credit mix (credit cards, loans, mortgages)

Length of credit history

New credit inquiries

Notice what’s missing? Things like your income, your job, or your savings account balance. Insurers aren’t looking at those. They’re essentially running your credit report through a different filter.

And here’s something many people don’t realize: two people with the exact same credit score might have very different insurance scores. That’s why one friend might be quoted R2,000 a month while another, with what seems like the same financial profile, pays R1,400.

My Personal Wake-Up Call

When I was in my twenties, my credit score wasn’t exactly “brag-worthy.” I had a couple of missed payments on a retail store account and carried more balance on my credit card than I should have. I didn’t think much of it—until I bought my first car and shopped for insurance.

I was quoted a premium that felt sky-high. A colleague—same age, same city, similar car—was paying significantly less. The only obvious difference? She had squeaky-clean credit. That was the first time it really hit me that financial discipline (or lack of it) could literally drive up the cost of my monthly bills, even ones that had nothing to do with debt.

That sting taught me more about the invisible ways credit touches your life than any financial literacy workshop ever could.

The Criticism: Is This Really Fair?

Here’s where things get tricky. Many consumer advocates argue that using credit scores in insurance pricing is inherently unfair. After all, just because someone had a tough year financially—say they lost a job, had unexpected medical bills, or went through a divorce—doesn’t mean they’re a bad driver.

There’s also a broader critique: credit scores can reflect systemic inequalities. If someone grew up without access to financial education or banking, they might struggle to build a strong score in the first place. Penalizing them again with higher premiums seems like adding insult to injury.

Even regulators have weighed in. In some parts of the world, the use of credit scores in insurance has been banned or heavily restricted. South Africa, for example, tends to lean more heavily on driving records, claims history, and vehicle value—but the global conversation about fairness is still relevant.

The Numbers Insurers Don’t Talk About Loudly

Studies in the U.S. (where this practice is more entrenched) have shown that drivers with the lowest credit tiers can pay up to twice as much as those with excellent credit—even with identical driving histories.

It’s worth pausing there. Imagine two neighbors: both drive the same car, both have spotless records, but one went through a messy financial chapter a few years back. Their insurance bills might look wildly different, and not because of anything to do with driving ability.

That doesn’t sit well with a lot of people. And rightly so.

The Psychological Side of It

There’s also a subtle psychological dimension here. When people find out their credit score impacts their premiums, some become motivated to tidy up their finances. They pay off debt, avoid late payments, and watch their numbers climb. Others, however, feel defeated—like they’re being punished for mistakes they can’t undo overnight.

The irony is that insurers argue this model helps “reward” financially responsible drivers. But if the system leaves others feeling trapped, is it really functioning as intended?

Can Improving Your Credit Score Actually Lower Your Premium?

Here’s the silver lining: yes, in many cases, improving your credit score can eventually reduce your car insurance costs. It won’t happen overnight, but over a year or two, the savings can add up.

Steps that may help:

Paying bills on time, every time (even small bills matter).

Reducing your credit utilization ratio (using less of your available credit).

Avoiding too many new credit inquiries in a short period.

Keeping old accounts open to lengthen your credit history.

I’ll be honest, when I made small but consistent changes—like setting up debit orders so I never missed payments—my score gradually improved. A year later, I requested a quote again and, to my surprise, the premium had dropped. Not dramatically, but enough to notice.

That’s when I realized: sometimes, the “unfair” system can still be gamed in your favor if you understand the rules.

What If You Can’t Improve Your Score Quickly?

Not everyone has the luxury of boosting their credit overnight. If that’s you, there are still practical steps to keep premiums from ballooning:

Shop around: Different insurers weigh credit differently. One may be stricter than another.

Bundle policies: Sometimes combining car and home insurance can unlock discounts.

Increase your excess (deductible): Riskier if you have an accident, but it can cut monthly costs.

Drive a lower-risk vehicle: Yes, the type of car still matters. A modest hatchback costs less to insure than a flashy SUV.

The key is not to accept the first quote as destiny.

Where the Conversation Is Heading

Globally, the debate about using credit scores in insurance isn’t going away. Some regulators push for bans; others argue for transparency so consumers at least know how they’re being judged. Insurers, unsurprisingly, defend the practice because it’s profitable and data-driven.

It’s one of those areas where business logic and human fairness often clash. And if history tells us anything, policies around credit scoring and insurance are likely to evolve.

Final Thoughts: Beyond Numbers on a Page

At the end of the day, your credit score isn’t just a number that decides if you get a loan or a new credit card. It’s part of a bigger ecosystem that affects everything from housing applications to, yes, car insurance premiums.

Do I think it’s entirely fair? Honestly, no. It seems overly simplistic to equate financial hiccups with being a reckless driver. But I also understand why insurers lean on every predictive tool they can find—it’s how they stay profitable.

What I’ve learned, though, is that awareness gives you power. When you know your credit score could influence your premiums, you’re no longer blindsided. You can work the system, shop smarter, and—over time—maybe even flip the balance in your favor.

So next time you glance at that renewal letter, don’t just sigh and accept the number. Remember: part of that figure is reflecting how you’ve managed money, not just how you’ve managed a steering wheel. And if you don’t like what you see, there are ways—slow and steady, but real—to change it.

Published on: Sep 11, 2025

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