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Bad credit can impact your life in many ways, from denied loans to high interest rates to rejected rental applications. Credit is also a significant rating factor in most states when calculating car insurance premiums, so a low credit score can mean a hefty car insurance bill. According to rate data obtained from Quadrant Information Services, drivers with bad credit pay an average of $3,002 per year for a full coverage policy, almost double the full coverage rate for drivers with excellent credit.
If you have bad credit, it can be hard to find an affordable policy. Bankrate has broken down how your credit score can affect your car insurance premium and has curated a list of car insurance companies that may be able to better assist those with lower than average credit scores.
Best car insurance for bad credit
In states that use your credit history to inform your insurance score, drivers with poor and average credit generally pay more for auto insurance than those with excellent credit. Some auto insurers choose to weigh your credit score more heavily than others.
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 insurable 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.
Drivers with bad credit may want to consider getting a policy from Dairyland, Direct Auto or Progressive.
Headquartered in Wisconsin, Dairyland specializes in insuring high-risk drivers in 37 states. A key draw to Dairyland is its A+ (Superior) AM Best financial strength rating, which indicates it has a strong ability to meet ongoing financial obligations, including claim payouts. Drivers may also appreciate add-on coverage options, like special equipment coverage to replace custom parts installed in their vehicle, and gap insurance to cover the loan balance if their new car is totaled. However, its National Association of Insurance Commissioners’ (NAIC) overall complaint score indicates that Dairyland receives over twice as many consumer complaints compared to the national baseline of 1.0.
Learn more: Dairyland Insurance review
Direct Auto may be a solution for drivers with poor credit. In addition to providing basic car insurance coverage options, Direct Auto also offers an optional accidental death coverage. This would pay $5,000 to your specified beneficiary if you pass away due to an accident in your car. One drawback to Direct Auto is its lack of robust additional coverage options, such as rideshare coverage and gap insurance..
Learn more: Direct Auto Insurance review
Progressive could be an option for drivers who prefer a national insurance carrier. Although it does not specialize in high-risk drivers, Progressive does provide SR-22 filing for drivers who require one. The carrier also has features like its deductible savings bank, to help reduce your collision and comprehensive deductible every policy period you remain claims-free. In contrast to its strengths, Progressive consistently ranked in the bottom quartile for overall customer satisfaction in the 2022 J.D. Power U.S. Auto Insurance Study.
Learn more: Progressive Insurance review
Another major insurer, Allstate also offers SR-22 filing and car insurance to high-risk drivers. Drivers with poor credit who are striving to improve their finances could take advantage of Allstate’s rewards, including responsible payer, automatic payments and paid-in-full discounts. Allstate even offers a safe driving bonus in some states to reward safe drivers who haven’t been involved in accidents in the last six months. Although Allstate has many discount opportunities and individual rates may vary, drivers with poor credit still pay $3,239 per year for full coverage on average.
Learn more: Allstate Insurance review
Cheap car insurance with bad credit
Depending on the state you live in, most car insurance companies consider your credit score when pricing your policy. However, each company weighs the importance of it a little differently. Getting quotes to compare rates, coverage options, 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, Nationwide, Geico, Mercury and Amica (chosen based on market share) are some of the cheapest providers for drivers with bad credit. In addition to low average rates, these cheap car insurance 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, four states currently do not use credit as a rating factor: California, Hawaii, Massachusetts and Michigan. Washington recently attempted to place a three-year ban on using credit as a rating factor for insurance, which would have gone into effect in March 2022. However, in August 2022, the court ruled that the commissioner overstepped his authority when issuing a temporary ban on using credit as a rating factor. The court’s final decision was that credit can be used to rate auto insurance policies in Washington, and the commissioner has confirmed that he will not appeal the decision.
While insurance companies in California, Hawaii, Massachusetts and Michigan do not use credit score as a direct rating factor, they use several other factors, including your driving history, vehicle type and more. Because every driver is unique, premiums will still vary even in states where 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 often be significantly different. Unless you live in California, Hawaii, Massachusetts or Michigan, 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 poor credit||Average annual full coverage premium with excellent credit|
*These states do not allow the use of credit as a rating factor, so your credit score should not affect your car insurance rate.
What is no-credit-check auto insurance?
Most auto insurance companies use credit checks as part of their algorithm for determining rates for drivers. However, some companies offer what is called no-credit-check auto insurance. These insurance policies do not use your credit score to generate your auto insurance rate.
When shopping around for a no-credit-check auto insurer, you may want to find a few companies and compare them, as the premiums may be higher than standard car insurance 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 less 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 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: Typically, skimping on coverage isn’t 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 coverage types you need may be helpful. You may be paying for coverage options that are no longer necessary for you. For instance, you may be able to save by removing coverage options like new car replacement or accident forgiveness if you are currently paying for those benefits. . Speak with your insurance agent to determine what coverage types and levels are right for you.
Frequently asked questions
Bankrate utilizes Quadrant Information Services to analyze 2022 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 2020 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. Four states prohibit the use of credit-based insurance scores as a rating factor in determining auto insurance rates: California, Hawaii, Massachusetts, and Michigan.