Did you know that maintaining a good credit score can have a positive impact on your insurance rates? According to the National Association of Insurance Commissioners, 95% of auto insurance carriers use what’s called a credit-based insurance score to calculate premiums. While your car insurance policy will not impact your credit score, your credit can affect your premiums.

Why do insurance companies check our credit? According to Progressive, Insurance companies check credit scores to gauge the risk they are taking to insure you. Studies show that people with lower credit scores have a history of filing more claims, which makes them higher risk. Higher credit scores correlate with a lower risk of claims. Because most states do check credit, having bad or no credit can increase your rates. Depending on the state and insurer, some people can pay an average of 67% more in premiums for their car insurance than people with excellent credit. Below-average credit raises rates more in some states than in others.

Do these credit checks affect my credit score? The short answer is no, Insurance companies preform what is commonly referred to as a “soft check” on your credit when giving you a quote. This type of credit check does not appear on your report or affect your score in any way. The score is based on your credit history but isn’t the same as the traditional FICO Score that home lenders use.

As a result, having good credit can help when you’re shopping for a new insurance policy or when your insurance company renews your policy. The opposite is also true. While a low credit score alone may not be enough to cause a premium hike, it can have that effect if there are other factors at play.