Auto insurance rates are complex and involve dozens of factors. In most states, your credit score is used as a rating factor. Drivers with poor credit pay an average of 103% more for car insurance than people with excellent credit, according to data obtained from Quadrant Information Services. If you have no credit score, you could pay even more.
Understanding how your credit impacts your car insurance premium, what companies are best for drivers with low credit scores and what steps you can take to lower your premium might help you feel more in control of your car insurance.
Best car insurance for bad credit
According to insurance expert Laura Adams, “Many drivers are surprised to learn that having poor or even average credit typically means paying more for auto insurance than if you have excellent credit. How much more depends on your insurer and the state where you live.”
In the auto insurance world, bad credit and high-risk drivers overlap. Statistically speaking, drivers with low credit are more likely to file claims, meaning that they are a greater risk for an insurance company. As a result, many of the best auto insurance companies for bad credit drivers are the same as those for high-risk drivers.
- Dairyland: Specializes in high-risk drivers
- Direct Auto: Specializes in high-risk drivers
- Progressive: Provides insurance for high-risk drivers
- Allstate: Provides insurance for high-risk drivers
Cheap car insurance with bad credit
Although most car insurance companies consider your credit score when pricing your policy, each company weighs the importance of it a little differently. Getting quotes to compare rates, coverages, discounts and policy features is recommended for most drivers, but if your credit score is low, shopping around can be even more important.
Based on our research, the companies below (chosen based on market share) are some of the cheapest providers for drivers with bad credit. In addition to low average rates, these companies rank highly for customer satisfaction with J.D. Power. These companies also offer numerous discounts, which might help you lower your premium.
|Car insurance company||Average annual full coverage premium with poor credit|
How your credit score impacts your car insurance rates
Auto insurance companies generally perform a credit check on new customers as they are signing up for insurance. Drivers with lower credit scores are statistically more likely to file claims, which means they could cost the insurance company more money. To compensate for the added risk, most insurance companies in most states charge higher rates for drivers with lower credit scores. In general, the higher your credit rating, the lower your insurance premium.
However, there are five states that currently do not use credit as a rating factor: California, Hawaii, Massachusetts, Michigan and Washington. Washington is a recent addition to this list, placing a three-year ban on the use of credit as a rating factor for auto, home and renters insurance. However, this does not necessarily mean that all drivers in these states will pay the same amount for car insurance. Rates are made up of numerous factors, including your state’s insurance laws, your driving history and the type of car you drive. Because every driver is unique, premiums will still vary even though credit is not used to rate policies.
|Credit level||Average annual full coverage premium with poor credit|
Auto insurance rates for bad credit by state
The cost of insurance for a driver with poor credit and a driver with good credit can be significant. Unless you live in California, Hawaii, Massachusetts, Michigan or Washington, your credit rating will likely impact your premium. In some states, drivers with poor credit can pay over twice the amount that drivers with good credit pay for the same coverage.
|State||Average annual full coverage premium with bad credit||Average annual full coverage premium with good credit|
*These states do not allow the use of credit as a rating factor.
What is no-credit-check auto insurance?
Most auto insurance companies use credit checks as part of their algorithm for determining customer rates. However, some companies offer what is called no-credit-check auto insurance. These are insurance policies that do not use your credit score to generate your rate.
When shopping around for a no-credit-check auto insurer, make sure to find a few companies and compare them, as the premiums may be higher than standard companies. The higher cost of these no-check plans is the company’s way of creating a protective buffer around financial risk. Some customers will pay more than they might with a credit-check, while others will pay less.
How to improve your credit score
If you are trying to improve your credit score, there are a few guidelines that could make the process smoother. Although it can take time to see your score improve after implementing these strategies, improving your credit score can improve many aspects of your financial health.
- Make payments on time. Making late payments, or failing to make payments at all, is one of the worst things you can do to your credit. Making timely payments is one of the best ways to increase your score.
- Never make less than the minimum payment. Making less than the minimum payment is not as bad as not paying at all, but it will still leave your account delinquent until the full payment is made.
- Use credit and debt wisely. Be careful when you take out loans and credit cards. If the minimum payments will stretch your budget, it might be best to forgo the loan or card entirely.
- Maintain a low credit utilization rate. The more of your total credit that you keep available, the less risky you will be to your lender. Using only 30% or so of your available credit is optimal for growing and maintaining a good credit score.
- Use credit monthly and pay it down monthly. Use credit monthly and pay it off that month. When you do this, you can grow your credit rating for minimal cost, as paying things off immediately can avoid most of the interest accrual.
Other ways to save on car insurance
Beyond improving your credit score, there are other ways to save on car insurance. Some common ways to save include:
- Taking advantage of discounts: Most car insurance companies offer at least a few discounts that might help you lower your premium. Bundling your auto and home, renters or condo insurance is one of the most common discounts available.
- Increase your deductibles: If you have full coverage, you have a collision deductible and a comprehensive deductible. Increasing one or both will generally lower your premium, but you will need to pay more if you file a claim for vehicle damage.
- Compare quotes: Because every insurance company has a different rating system, the price for the same coverage can vary between providers. Getting several quotes might help you find a lower rate.
- Consider your coverage: Skimping on coverage is never a good strategy to save money, as it can end up costing you more if you get into an accident. However, reviewing your policy and making sure you are only paying for coverages you need can be helpful. There may be optional coverages included that you do not feel are necessary for your situation.
Frequently asked questions
Will my car insurance go down if my credit improves?
If your credit score has improved since you took out a policy, you might see a reduction in your premium. This is most likely to happen at your renewal, as this is when your company might re-evaluate your credit. However, if you have seen a significant improvement in your credit score and you do not want to wait for your renewal, you might be able to have your insurance company re-evaluate your credit. Not all companies can do this, but if your company has the ability to do so and your credit has improved, you could see a premium reduction without having to wait for your policy to renew.
Does applying for insurance affect my credit?
No, getting an insurance quote and filling out an application do not affect your credit. Insurers pull your credit information using a “soft inquiry,” which is different from the “hard inquiry” that happens when you apply for a loan or credit card. Hard inquiries can affect your credit, where soft inquiries do not. Soft inquiries simply look at your credit information without impacting it.
Can I negotiate with my company for a lower rate?
No, you cannot negotiate your car insurance rates. If you are working to improve your credit score, you may think that alerting your car insurance company to your efforts might result in a lower premium, but car insurance rates are not negotiable. You might lower your premium by improving your credit score, but until your score has actually changed, your rate will not likely be affected.
Bankrate utilizes Quadrant Information Services to analyze 2021 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on a 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:
- $100,000 bodily injury liability per person
- $300,000 bodily injury liability per accident
- $50,000 property damage liability per accident
- $100,000 uninsured motorist bodily injury per person
- $300,000 uninsured motorist bodily injury per accident
- $500 collision deductible
- $500 comprehensive deductible
To determine minimum coverage limits, Bankrate used minimum coverages that meet each state’s requirements. Our base profile drivers own a 2019 Toyota Camry, commute five days a week and drive 12,000 miles annually.
These are sample rates and should only be used for comparative purposes.
Credit: Rates were calculated based on the following insurance credit tiers assigned to our drivers: “poor, average, good (base), and excellent.” Insurance credit tiers factor in your official credit scores but are not dependent on that variable alone. The following states do not allow credit to be a factor in determining auto insurance rates: CA, HI, MA, MI, WA