Here's how your credit score can save — or cost — you money on your car insurance

A high credit score can help you get lower mortgage rates, better credit cards and good terms for a personal loan. But you may not know that this three-digit number can also affect the insurance rates you can be approved for — and if you're a current or future car owner, this means your credit score can affect your auto insurance rate. 

Only a few states – California, Hawaii, Massachusetts and Michigan – prohibit or limit insurance companies from factoring in your credit score when determining your auto insurance rate. If you live in any other state, a low credit score could potentially cost you hundreds in car insurance every year. Here's what you need to know about how to stop that from happening.

• What is a credit-based auto insurance rate? 
• How does a low credit score affect car insurance rates? 
• How can I lower my car insurance rates despite my credit score? 
• How can I raise my credit score? 
• Bottom line

Your credit score is based on information gathered in your credit report, which contains financial information such as your on-time payments, number of credit accounts, credit mix and more. Lenders use your credit score to determine how likely you are to repay a loan or line of credit on time and in full.

Most auto insurance companies look at some of the same factors that make up your credit score to determine a credit-based insurance score. This number helps tell insurance companies how likely you are to file a claim in the future (at least in theory). Insurance companies will then use this score along with your driving history and claims history to decide what type of premium payment plan (monthly, every six months or annually) and what rate you're eligible for. Other factors like location, demographics, extent of coverage and vehicle type, can also affect the cost of your car insurance. 

In general, the more likely you are to file a claim, the more the insurance company will charge you in premiums.

Just like a ticket or an accident, a low credit score can drive up your car insurance rate. In most states, your insurance company can check your credit score each time you renew your policy. If your credit score plummets after you initially enroll with a certain company, that lower score could come back to haunt you in the form of increased rates when you renew your policy or switch providers. However, insurance companies can't change your rate in the middle of your policy's term.

Drivers with poor credit (a credit score under 580) pay 97% more, on average, for full coverage car insurance premiums than do their counterpart drivers with exceptional credit (a credit score above 800), according to a study by Bankrate. The study summarizes that that's an average difference of more than $1,700 every year.

Don't be thrown off by thinking you have to have perfect credit to save some cash on car insurance. Moving up the credit score ladder even a rung or two can potentially save you hundreds. By getting your score up from poor to average, for example, you can save 20% (an average of about $600 annually), according to car insurance comparison site The Zebra. 

If your car insurance payment is breaking the bank, consider shopping around for a better rate. Requesting a car insurance quote doesn't cause a hard pull of your credit report, so getting estimates from multiple companies won't hurt your credit score. 

If you're looking for a cheap auto insurance company, get a quote from Geico. CNBC Select ranks Geico as the best overall car insurance provider, and it has the lowest average annual premium, $1,353, for full coverage car insurance of the companies we've reviewed. It also has a relatively low offering for minimum coverage car insurance ($373). 

If you'd rather stick with your current insurance company, there are still a few ways you can save. One is by reassessing your coverage. If you have full coverage car insurance — a bundle that includes liability coverage, collision coverage and comprehensive coverage — you're the most covered you can possibly be on the road.

However, full coverage car insurance likely costs way more than the minimum coverage required by your state. If you're an especially careful driver, you could save by choosing a less comprehensive coverage plan. Be careful though, because using minimum coverage could come back to bite you should you be at fault in an accident. 

Simply not getting in accidents helps bring your car insurance payments down, and insurance companies usually reward less-risky customers. Do some research and find out if your insurance provider offers a usage-based car insurance program, which could reward you for safe driving. If you opt into one of these programs, your insurance provider will begin measuring your speed, acceleration, braking and mileage. Money.com reports that these programs could save you 20-30% in premium costs, simply by driving safely. 

While you're researching usage-based insurance programs, keep an eye out for other discounts that your insurance provider may offer. Some companies charge fees for paying each month, so you could save some money by paying your premium as one lump sum. Paying upfront could save you as much as 12%, according to The Zebra. However, this is a large expense, and you may not have a couple thousand dollars in cash ready to make this lump payment.

Most large insurance companies, like Nationwide and Progressive, also offer discounts for bundling your homeowners or renters insurance with your auto insurance. 

Still, the best way to lower your auto insurance rates, as well as all the other wallet-draining rates in your life, is to get your credit score up. 

If you're still reaching for more savings on car insurance, you may have to work to raise your credit score. One of the simplest ways to raise your credit score is by making bill and debt payments on time. If you struggle to do so, you should consider setting up autopay for your bills so that you never miss a payment. 

Also, keep an eye on your credit utilization rate, which is the ratio between your spending and your total credit limit. Experts recommend keeping your credit utilization rate below 30%, though below 10% is even better. To accomplish this without shrinking your monthly budget, you could call your credit card issuer and request a credit limit increase, which would decrease your utilization ratio as long as you don't increase your credit card spending.

You could also request a credit report and dispute any errors that could be harming your score. In 2021, CNBC reported more than one third of Americans found errors on their credit reports. Using a credit-boosting service like Experian Boost™ can help you get credit for making monthly utility payments. Experian Boost™ connects to your bank account and scans for recurring, on-time payments, like streaming subscriptions and phone bills. These payments typically aren't reported to credit bureaus, so Experian Boost™ could increase your credit score with payments you already make.

Your credit score is one of the most significant factors in your car insurance costs. Getting your credit score up, even marginally, could save you hundreds in auto insurance payments every year. 

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every insurance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best insurance products.

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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.