Car insurance can be expensive, even with safe driving and other available discounts. For those struggling with bad credit, the price of car insurance can climb even higher. 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.”
Many car insurers raise rates on customers with bad credit. One way of dealing with this is to pursue a no-credit-check auto insurance plan, but this can end up costing even more if not done carefully. Another option is to look for a company that offers usage-based auto insurance.
In this guide, we will discuss some of the best options and methods for finding and using no-credit-check auto insurance and non-credit based car insurance, as well as revealing how to improve credit scores and other ways to save on car insurance.
Best car insurance for bad credit
In the auto insurance world, bad credit and high-risk drivers overlap. Both are categories that represent an increased risk of financial loss for the insurance company. As a result, many of the best companies for bad credit drivers are the same as those for high-risk drivers. It is not uncommon for bad credit to be lumped under the category of high-risk driver. If you are looking for cheap car insurance with bad credit, the key is to find the auto insurance companies that don’t check credit.
- 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. You already know you need to shop around for the best rate, but if your credit score is low then shopping around is even more important. Simply put, some companies will hurt you for a low credit score while others won’t as much.
Based on our research, the companies below (chosen based on market share) are some of the cheapest providers for drivers with bad credit. Each year you’ll routinely find each one on J.D. Powers’ list of the best customer service providers in the industry. Furthermore, in addition to being cheaper than other providers, you can save even more through numerous discounts with each if you do your homework. Just make sure you call and speak with an agent about the actual amount you’ll save with each discount if it’s not listed on the website. This will help you narrow down your list even more.
|Car insurance company||Average annual 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. As reported by insurance expert Laura Adams, “California, Hawaii and Massachusetts are the only states that prohibit the use of credit in setting auto rates. For drivers in the remaining 47 states, improving your credit means saving money on car insurance.”
When these insurers use customer credit scores to determine eligibility and rates, a significant portion of their equation is based on how likely a customer is to file a claim in the future. And the more claims a customer files, the more money it will cost the insurance company.
While this does mean that some people are paying more for their auto insurance, it also translates to some people paying less. A good credit score, driving record and low record of filing insurance claims will result in a lower premium. Inversely, poor credit ratings, bad driving records and frequent insurance claims filed in the past will lead to an increase in premiums. What this all boils down to is that people with higher credit scores are generally cheaper to insure, and so the insurers may charge them less for that service.
|Credit level||Average annual premium with poor credit|
Auto insurance rates for bad credit by state
The average cost difference between a driver with good credit and bad credit is often quite significant. Unless you live in California, Hawaii or Massachusetts (where insurance companies are prohibited from using credit scores to price your policy), the average price difference is 67%. The worst states are currently Michigan, New York Florida and Wisconsin, where there is a difference of well over 100% between credit scores.
|State||Average annual premium with bad credit||Average annual premium with good credit||Difference|
|DISTRICT OF COLUMBIA||$3,062||$1,914||60%|
What is no-credit-check auto insurance?
In most of the United States, 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. A no-credit-check insurance plan is exactly what it sounds like. These are insurance policies that do not factor your credit score into it. If you are applying for auto insurance and they don’t ask you for your social security number, then the odds are excellent that it is a no-credit-check insurer. Inversely, if your insurer does ask for your social security number during the application process, then they intend to run a credit check.
When shopping around for a no-credit-check auto insurer, make sure to find a few companies and compare them, as the premiums can be pricey. 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.
Top no-credit-check insurance companies
No-credit-check insurance companies are rare and often provide only localized coverage. However, numerous larger insurers offer usage-based auto insurance plans, which will not factor your credit rating into your premium. Allstate and Progressive are both large auto insurers that provide usage-based policies and have been reported at various points not to use credit checks. However, their algorithms are continually evolving, and so the only way to be sure that they will not require a credit check is to ask them or to enroll in one of their usage-based policies.
How to improve your credit score
When looking to improve your credit score, there are a few guidelines that rise to the top. Below is a list of preferred steps and strategies for improving your credit score. For an in-depth look at how to improve your credit score, see the Bankrate guide.
- Make payments on time. Few things hurt your credit more than not making payments. Inversely, 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.
- Do not acquire premiums larger than you can afford. If the premiums on a loan are going to be hard to pay, do not accept the loan. Taking such a loan is a recipe for developing bad credit and a lot of late fees.
- Maintain a low credit utilization rate. The more of your total credit that you keep available, the less risky your lender will see you. 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. Below is a brief list of some of the most recommended strategies for auto insurance savings. A detailed guide of tips and strategies can be found at Bankrate.
- Look for discounts
- Reduce your coverage
- Raise your deductible – it may cost you more in an emergency, but it will lower your premiums
- Compare quotes from multiple companies to get the best deals
- Bundle insurance plans as this can lower your rate
Another good thing to try is negotiating with your insurer. Insurance expert Laura Adams recommends, “As you build credit for the first time, or after recovering from financial hardship, ask your auto insurer to re-rate you. Remember that not all insurers use credit to evaluate you or use it in the same way. So, it’s critical to shop and compare multiple policies to get the best car insurance for bad credit.”
Bankrate utilizes Quadrant Information Services to analyze 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 sample drivers own a 2018 Honda Accord, commute five days a week and drive 12,000 miles annually.
For 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
These are sample rates and should be used for comparative purposes only. Your quotes may be different.
Rates are determined based on 2020 Quadrant Information Services data.