Yes, your credit score can determine your insurance rates in most states, including Alabama. Insurance companies use something called a "credit-based insurance score" to help set your premium. It's not the same as the credit score a bank uses, but it pulls from the same information. If your credit is strong, you may pay less. If your credit is weak, you could pay a lot more.
This might sound unfair. And many people don't even know it's happening. But it's very common. According to FICO, about 95% of auto insurers and 85% of home insurers use credit-based scores when pricing policies.
That's a huge number. It means almost every insurance company you talk to is looking at some version of your credit before giving you a price.
In this article, we'll break down how credit-based insurance scores work, how much they can actually affect your rates, which types of insurance are impacted, and what you can do to lower your costs. Whether you're in Madison, AL or along US-280 in Sylacauga, AL, this is something every insurance shopper should understand.
What Is a Credit-Based Insurance Score?
It's Not the Same as Your Regular Credit Score
This is the part that trips most people up. Your credit-based insurance score is a completely different number from the credit score your bank or credit card company sees. Both scores pull data from the same credit report, but they weigh things in a different way.
A regular credit score predicts how likely you are to pay back a loan. An insurance score predicts how likely you are to file a claim. Same ingredients, different recipe.
So even if your regular credit score looks solid, your insurance score might tell a slightly different story. And the opposite can be true as well. That's because each insurance company builds its own scoring model. Two carriers can look at the same credit report and come up with different scores.
What Goes Into Your Insurance Score
According to the NAIC (National Association of Insurance Commissioners), FICO uses five main areas to build your credit-based insurance score. Here's how they break down:
Notice that payment history makes up the biggest piece by far. If you've been paying your bills on time for years, that carries real weight in your favor. On the flip side, missed payments and late bills can drag your score down fast.
Outstanding debt comes in second. If your credit cards are close to maxed out, that's a red flag in the eyes of the scoring model.
What Is NOT Included
Your insurance score does not look at your income, your job title, your race, your religion, or your marital status. It also ignores things like shopping around for loans. Those "soft inquiry" credit checks don't count against you.
That last point is important. Getting a quote from an insurance company will not hurt your credit. Not even a little. So there's no reason to avoid shopping around.
How Does Your Credit Score Affect Your Insurance Rates?
The Short Answer: A Lot More Than You'd Think
The impact can be much bigger than most people expect. A 2025 report from the Consumer Federation of America found that homeowners with low credit scores pay nearly $2,000 more per year than homeowners with high scores. And that's even when everything else about the home is the same. Same neighborhood. Same building materials. Same coverage level. The only difference? Credit.
For auto insurance, the gap can be even wider. Some analyses show that drivers with poor credit pay roughly double what drivers with excellent credit pay for the same full-coverage policy.
Let that sink in. You could be paying twice as much as your neighbor for the exact same coverage, just because your credit score is lower.
Why Do Insurers Use Credit?
Insurance companies say that people with better credit tend to file fewer claims. Whether or not you agree with the reasoning, the pattern shows up consistently in their data. Insurers see low credit as a signal of higher risk, and they charge more because of it.
Think of it like this. Two people live on the same street in Madison, AL. They have the same type of house, the same coverage limits, and no claims history. But one has strong credit and the other has weak credit. The person with weak credit could end up paying hundreds or even thousands more every single year. Same house. Same policy. Different price tag.
It's the kind of thing that makes you want to check your credit score right now. And honestly, you probably should.
Credit Can Matter More Than Where You Live
Here's something that surprised even the researchers who studied it. The Consumer Federation of America's 2025 report found that, on average, having a low credit score actually costs homeowners more than living in a high-risk disaster area.
Read that again. Your credit history could affect your home insurance rate more than whether you live in a hurricane zone or tornado alley. That tells you just how heavily insurers lean on this one factor.
Which Types of Insurance Are Affected?
Auto Insurance
Your credit-based insurance score plays a major role in what you pay for car insurance. In states where it's allowed, carriers use it alongside your driving record, your vehicle type, your ZIP code, and your claims history to set your rate.
If you're looking for cheap auto insurance, improving your credit is one of the most effective steps you can take. It won't happen overnight, but even small gains can lead to lower premiums at your next renewal.
Home Insurance
Home insurers also check your credit in most states. Your home insurance rate depends on many things, like the age of your home, its location, the materials it's built from, and your claims history. But credit is a factor that can move the needle more than many of those combined.
In Alabama, where storm damage is a real concern, many homeowners already pay higher rates than the national average. A low credit score on top of that can make the bill sting even more.
Renters Insurance
Yes, credit can affect renters insurance too. Renters policies tend to be cheaper overall, but the same credit-based scoring model applies. If you're renting in Madison, AL or Sylacauga, AL, it's worth knowing that your credit is part of the picture.
Motorcycle, Boat, and RV Insurance
Some carriers also consider credit for motorcycle, boat, and RV insurance. The rules vary by state and by carrier, so it's always smart to ask. If you're shopping for coverage on any recreational vehicle, your credit might be part of the pricing formula.
Life Insurance
Here's some good news. Life insurance companies generally do not use credit-based insurance scores to set rates. Your life insurance premium is based more on your age, health, lifestyle, and the amount of coverage you want. So if your credit is a concern, at least it won't follow you into that part of your insurance planning.
Does Alabama Allow Credit-Based Insurance Scoring?
Yes, Alabama Allows It
Alabama is one of the many states that allows insurance companies to use credit-based insurance scores when setting rates. There's no ban in place. This applies to both auto and home insurance.
That said, Alabama law does not allow insurers to use your credit score as the only reason to deny you coverage or cancel your policy. It has to be one factor among several. So credit matters here, but it's not the whole story.
Which States Ban or Limit It?
A handful of states have placed limits or outright bans on credit-based insurance scoring. According to the NAIC, the states with the strongest restrictions include California, Hawaii, Maryland, Massachusetts, and Michigan. Some other states like Oregon and Utah have partial limits that restrict how credit can be used.
If you live in Alabama, though, your credit is almost certainly part of how your premium gets calculated. That's why it pays to understand how it works and take steps to improve your score where you can.
Protections You Should Know About
Even in states like Alabama where credit scoring is allowed, there are some protections. If an insurer denies you coverage or charges more because of your credit, they're required to tell you within 30 days. They also have to tell you which credit bureau provided the information so you can get a free copy of your report.
Some insurers will also make exceptions if your credit was affected by a major life event like a serious illness, the death of a family member, a temporary job loss, identity theft, or a recent divorce. You can ask your carrier about this. It doesn't always work, but it's worth a try.
How Much More Could You Be Paying?
The Numbers Tell the Story
The cost gap between good credit and poor credit is real, and it's not small. Here's a simplified look at what the difference might look like for a typical homeowner:
Note: Exact amounts depend on your insurer, location, and policy details. These are general patterns, not guaranteed numbers.
For auto insurance, the pattern is similar. Drivers with poor credit pay roughly 100% more for full coverage compared to drivers with excellent credit in most states that allow credit scoring.
Even Medium Credit Costs You Money
It's not just people with poor credit who feel the pinch. The Consumer Federation of America's research showed that homeowners with medium credit scores (around a 740 FICO) still pay nearly $800 more per year compared to those with the highest scores. That's a real chunk of money, even for someone who manages their finances pretty well.
Small Credit Improvements Can Mean Real Savings
You don't need to go from "poor" to "excellent" overnight. Even bumping your score up one tier, say from fair to good, could lead to meaningful savings when your policy renews. Every step up helps.
How to Improve Your Credit-Based Insurance Score
Pay Your Bills on Time, Every Time
This is the single biggest thing you can do. Payment history accounts for 40% of your insurance score. Set up auto-pay or calendar reminders so you never miss a due date. Even one late payment can pull your score down. A pattern of on-time payments, month after month, builds trust in your credit profile.
Pay Down Your Debt
Outstanding debt makes up 30% of your score. Paying down credit card balances, even a little bit at a time, helps. A good rule of thumb is to keep your credit card usage below 30% of your total limit. If your limit is $5,000, try to keep the balance under $1,500.
Don't Open Too Many New Accounts at Once
Every time you apply for a new credit card or loan, it counts as a "hard inquiry" and can lower your score slightly. Space out your applications and only open new accounts when you truly need them.
Keep Old Accounts Open
The length of your credit history matters. If you have an old credit card you barely use, think twice before closing it. Keeping it open helps show a longer track record, which works in your favor.
Check Your Credit Report for Mistakes
Errors happen more often than you'd think. You can get a free credit report once a year from each of the three major credit bureaus at AnnualCreditReport.com. Look for wrong account numbers, payments marked late that you actually paid on time, or accounts that don't belong to you.
Fixing a mistake on your report could give your score a fast boost. It's one of the quickest wins out there.
Ask Your Insurer to Recheck Your Score
Here's a tip that many people miss. If your credit score has gone up since you last bought or renewed your policy, call your insurer and ask them to pull a new score. Some companies will adjust your rate right away. Others only check at renewal. Either way, it's worth asking. A five-minute phone call could save you real money.
What Else Can You Do to Lower Your Insurance Rates?
Shop Around and Compare Quotes
Every insurance company weighs credit differently. One carrier might penalize you heavily for a low score, while another barely blinks at it. That's why comparing quotes from multiple carriers is so important. The difference between the cheapest and most expensive quote can be hundreds of dollars for the exact same coverage.
At UR Choice Insurance, we compare quotes from 20+ carriers when you apply. You fill out one application, and we do the shopping for you. It's independent, unbiased advice with personalized service and real claims support. No call-center runaround. Homeowners and drivers in Madison, AL and Sylacauga, AL can start a free quote in about five minutes.
Bundle Your Policies
Many carriers offer a multi-policy discount when you combine your home and auto coverage, or add motorcycle, boat, or RV policies. Bundling can help offset the cost if your credit is pulling your rate higher than you'd like. Our guide on saving money when bundling policies walks through how this works and when it makes sense.
Raise Your Deductible
If you can afford to pay more out of pocket in the event of a claim, a higher deductible lowers your monthly premium. This won't fix a credit issue on its own, but it can help balance out the higher rate and give you some breathing room in your budget.
Maintain a Clean Claims Record
Filing fewer claims signals to insurers that you're lower risk. For small damage that barely exceeds your deductible, it often makes more financial sense to pay out of pocket than to file a claim that could raise your rate for the next three to five years.
If you do need to file, knowing the right steps makes a big difference. Our guide on how to file a home insurance claim successfully can help you through that process.
Add Safety Features to Your Home or Car
Smoke detectors, security systems, deadbolt locks, and smart home devices can all qualify you for discounts on home insurance. Similarly, anti-theft devices and safe driving habits can help bring your auto premium down. These discounts may be small on their own, but they add up over time.
Frequently Asked Questions
Does Getting an Insurance Quote Hurt My Credit Score?
No. Insurance companies use a "soft pull" when checking your credit for a quote. This type of check does not affect your credit score at all. So feel free to shop around as much as you want.
Is a Credit-Based Insurance Score the Same as a FICO Score?
No. They use similar data from your credit report, but they weigh things differently. A credit-based insurance score is built to predict claims risk, not your ability to repay a loan. You could have a great FICO score and a mediocre insurance score, or the other way around.
Can My Insurance Be Canceled Because of Bad Credit?
In most states, including Alabama, an insurer cannot cancel your policy based only on your credit score. However, credit can be one of the factors used when deciding your rate or whether to offer you coverage in the first place.
Do All Insurance Companies Use Credit Scores?
Most of them do. FICO estimates that about 95% of auto insurers and 85% of home insurers use credit-based insurance scores where state law allows it. A small number of specialized companies skip the credit check entirely, but they are rare.
How Long Does Bad Credit Affect My Insurance Rate?
It depends on when your insurer rechecks your score. Some companies check at each renewal period. Others only look when you first apply. If your credit improves over time, ask your carrier to pull a fresh score. You might get a better rate without having to switch companies.
Will Paying Off My Car Loan Help My Insurance Score?
It can. Paying off a loan reduces your outstanding debt and shows responsible credit behavior. Both of those things can help your credit-based insurance score over time. It may not cause a dramatic overnight change, but it moves you in the right direction.
Final Thoughts
Your credit score plays a bigger role in your insurance rates than most people ever realize. In Alabama and most other states, insurers can and do use credit-based insurance scores to help decide what you pay. The gap between good credit and poor credit can add up to hundreds or even thousands of dollars every single year, for both home and auto coverage.
But the good news is that you're not stuck with whatever rate you're given today. Pay your bills on time. Keep your debt low. Check your credit report for errors. And most importantly, shop around and compare quotes from multiple carriers. Every insurance company weighs credit differently, which means the best rate for your situation might be sitting with a carrier you haven't tried yet.
At UR Choice Insurance, we make that comparison easy. We work with 20+ carriers, give independent and unbiased advice, and provide real personalized service with claims support. Our process is simple: we CONNECT with you, COLLECT your details, ANALYZE quotes from across the market, and help you DECIDE on the best fit.
Whether you're in Madison, AL or along US-280 in Sylacauga, AL, we're here to help you find the right coverage at a price that makes sense.
Call or text us at (256) 692-5562, or start your free quote online. It only takes about five minutes.