Best car insurance for bad credit, plus how to improve your credit-based insurance score | CarInsurance.com
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How bad credit affects car insurance rates


Insurance risk score

Why does credit affect car insurance?

Even with a flawless driving record, you could get a hike in your insurance rate after the insurance company runs a credit check. Insurers use the information on your credit report to create their own insurance credit score for you, and use it when pricing coverage. Those with poor credit typically pay more for car insurance than those with good or excellent credit. Here we explain why and provide average rate increases by state for drivers with poor credit, as well as tips on how to improve your score and still save on car insurance.

Why and how insurance companies use your credit information

Insurers say their data show a connection between credit history and the filing of claims. People who pay their bills on time on average file fewer and less costly claims than those with a lot of late payments or delinquencies. That means drivers with poor credit generally cost insurance companies more money, so they are charged more for coverage.

Insurance companies don't consider the same credit score that lenders do. They create their own credit score for drivers, using information from your credit history. The credit score used by lenders predicts your ability to repay a loan. A credit-based insurance score predicts whether you'll file claims.

Insurance companies do, however, create their own insurance risk scores based on information from your credit report. The calculations are tweaked a bit but largely reflect your credit situation. Typically, a credit score of 700 or higher means your credit-based insurance score won't be anything to worry about.

Many of the variables used to calculate an insurance score are the same as a standard credit score, such as outstanding debt, length of credit history, new credit applications and type of credit used.

How much does car insurance go up for poor credit?

California, Hawaii and Massachusetts don't allow insurers to use credit information to set rates. In states where use of risk scores is legal, each insurer decides for itself what level of credit is acceptable and when to begin penalizing drivers below that mark. Having said that, drivers with poor credit will pay 69 percent more (about $985 more a year) for a full coverage policy than drivers with excellent credit, CarInsurance.com's rate analysis shows.

Full coverage car insurance for bad credit

Nationwide, the average difference in rates between good credit and fair was 17 percent. The difference between good credit and poor credit was 67 percent and between good and poor, 69 percent, according to CarInsurance.com rate data. How much more you pay depends on your insurance company, your state insurance laws, your driving record and other factors, but below you'll see the increase, on average, for drivers with poor credit compared to excellent, by state.

StateAverage rateRate with poor credit% increase$ increase
Michigan$2,368$6,316167%$3,948
New Jersey$1,419$2,925106%$1,506
Arizona$1,399$2,71194%$1,312
Texas$1,644$3,17093%$1,526
Utah$1,212$2,31691%$1,104
Nevada$1,578$2,98689%$1,408
Illinois$1,176$2,19887%$1,022
New York$1,214$2,25586%$1,041
Minnesota$1,339$2,47185%$1,132
Pennsylvania$1,438$2,57279%$1,134
Vermont$1,166$2,07078%$904
South Carolina$1,353$2,38676%$1,033
Alabama$1,304$2,29676%$992
Tennessee$1,339$2,34275%$1,003
Florida$2,250$3,92674%$1,676
Maine$884$1,54074%$656
Rhode Island$2,011$3,49674%$1,485
Montana$1,589$2,75673%$1,167
Colorado$1,675$2,89073%$1,215
Kentucky$1,611$2,76672%$1,155
Nebraska$1,287$2,20371%$916
Idaho$1,019$1,74271%$723
Indiana$1,057$1,80671%$749
Missouri$1,288$2,19771%$909
Louisiana$2,228$3,79770%$1,569
Delaware$1,838$3,12870%$1,290
South Dakota$1,250$2,11970%$869
Arkansas$1,556$2,62168%$1,065
Oklahoma$1,469$2,46868%$999
Ohio$959$1,61068%$651
Georgia$1,815$3,04067%$1,225
DC$1,887$3,15367%$1,266
North Dakota$1,123$1,87367%$750
Oregon$1,325$2,19366%$868
Kansas$1,412$2,32064%$908
Washington$1,307$2,11762%$810
Iowa$1,073$1,72861%$655
Virginia$993$1,59561%$602
New Mexico$1,498$2,40460%$906
Maryland$1,541$2,46460%$923
Wisconsin$1,147$1,83260%$685
New Hampshire$1,156$1,84660%$690
Mississippi$1,504$2,35857%$854
Connecticut$1,980$3,09556%$1,115
West Virginia$1,467$2,16748%$700
Alaska$1,246$1,78944%$543
Wyoming$1,577$2,17938%$602
North Carolina$1,170$1,31713%$147
California$1,783$1,7830%$0
Hawaii$1,255$1,2550%$0
Massachusetts$1,616$1,6160%$0

Best car insurance for bad credit

Each insurance company assesses risk differently, so how much more you pay for various things such as an accident claim, traffic violation, or, in this case bad credit, will vary, sometimes significantly. Below you'll see how major insurers compare on average price increases for drivers with poor credit. The increase is based on the difference between a driver with good credit and one with bad credit. You'll see Victoria, which specializes in high-risk insurance, has the lowest hike. That's why it pays to shop around. But, remember, sometimes carriers with the lowest increases for violations or poor credit have a much higher base rate, compared to others.

CompanyGood credit ratePoor credit rate% increase$ increase
Victoria$1,591$2,19338%$603
Nationwide$1,598$2,24441%$646
Allstate$1,868$2,90656%$1,038
Progressive$1,483$2,64477%$1,161
Farmers$1,753$3,03978%$1,279
Geico$1,109$2,09485%$986
State Farm$1,400$3,012113%$1,613

*Methodology: Calculations are rounded. Rates were fielded by Quadrant Information Services from up to six major insurers in 10 ZIP codes in each state for a driver of a 2017 Honda Accord, age 40, with full coverage and a $500 deductible.

How to improve your credit-based insurance score

Using credit to calculate what drivers pay for insurance is controversial topic, as insurers argue it benefits all drivers by ensuring accurate pricing, while consumer advocates say it's discriminatory and prevents those who need cheap car insurance the most from getting it. Still, there are ways to improve your insurance score, which will also eventually mean lower rates.

  • Pay your bills on time
  • Keep your credit card balances low-- the insurance score considers the amount you owe in relation to your credit limits, so don't max out your credit cards
  • Don't open unnecessary credit accounts
  • Establish and maintain credit
  • Make sure your credit report is accurate -- you can request free copies of your credit reports from the three national credit reporting agencies through AnnualCreditReport.com

If you're experiencing a financial hardship,  find free or low-cost help through the nonprofit National Foundation for Credit Counseling.

As your credit scores improve, your car insurance rates are likely to decline. You should consider pricing a new policy by doing a car insurance comparison at renewal time if you have seen a positive trend in your scores.

A good way to stay current on your consumer credit scores is to monitor them through a site such as Credit Karma. You can review your credit scores and credit reports for free.


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5 Responses to "How bad credit affects car insurance rates"
  1. Orez

    The argument that credit-impaired people lead to higher risk of claims is nonsense. It's the bad drivers who lead to higher risk of claims. So, a bad driver with good credit pays less than a good driver with poor credit. Doesn't make sense, does it?

      Reply»  
  2. auto financing

    Poor credit auto loans provide a wonderful opportunity to those with poor credit. You can improve your credit score simply by paying your loans on time. Thanks for sharing.

      Reply»  
  3. car financing for bad credit

    To get out from my financial hardships I should be consolidating my loans; however, i don't know what and where to start. But, I would like to personally thank you for sharing something that is helpful for many individuals wanting to consolidate their loans.

      Reply»  
  4. Jay

    The bigger question in my mind is why should your credit score affect what you pay for insurance of any kind? Do the insurance companies assess a greater risk of filing a false claim for deliberate damage to a lower credit score? Or do they just enjoy making things even harder for those with lower credit scores? I would like to see them justify that practice, if they can.

      Reply»  
    1. Jeff August 14, 2012 at 11:37 AM

      Agreed. I have pretty poor credit, and had to shop around before finding an insurer that didn't care very much about credit score for a new car loan (suprisingly, it was far easier to get the loan at a not horrible rate than insurance). In the end, a certain company promoted by a quarterback from Wisconsin cost me nearly $200 a month less than a certain agency with three letters that are the exact same and start with "A" wanted, simply because of the credit factor. I had a clean driving record and no tickets, BTW.

        Reply »  
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