You jingle-bell rocked your credit card spending during the holidays. Now, the bills are coming. Make sure you pay those bills on time. If not, your holiday retail hangover could extend to your car insurance rates, too.
Even if you stayed within your budget, if you maxed out your credit cards or opened up new lines of credit, your credit score may still sink. That could cause your car insurance rates to rise. Surprising to some, credit is one of the major factors car insurance companies consider when calculating your premium.
Drivers with poor credit pay a rate that is 71 percent higher on average than a driver with good credit. That’s about $1,000 more a year, a new CarInsurance.com rate analysis shows. It’s more than twice as much as the average premium hike (32 percent, or $455 annually) for an accident, according to CarInsurance.com’s data.
That’s right, missing credit card payments could result in your auto insurance rates rising higher than if you crashed your car.
Top 5 worst states for drivers with bad credit
The situation is much worse in some states. For example, in the following states, drivers with bad credit will pay a rate that is higher by:
- Michigan: 167 percent
- New Jersey: 106 percent
- Arizona: 94 percent
- Texas: 93 percent
- Utah: 91 percent
In nine other states, drivers with bad credit pay an average of least 75 percent more than drivers with good credit.
|State||Average rate||Rate with poor credit||% increase||$ increase|
Why Michigan tops the list
There are multiple factors driving insurance costs in Michigan that go beyond poor credit, says Dyck Van Koevering, general counsel of the Insurance Alliance of Michigan. That includes a law requiring drivers to purchase unlimited, lifetime medical benefits with their auto insurance.
“This one-of-a-kind mandate is driving up the cost of auto insurance for drivers across the state, making Michigan the most expensive state in the nation for auto insurance,” he says.
He also notes that drivers in neighboring states such as Ohio and Indiana – which also use credit information for setting insurance rates – pay only half as much for insurance as drivers in Michigan.
How insurance companies use your credit history information
Technically, insurers don’t use your credit score to determine your rates. Instead, they calculate what is known as a “credit-based insurance score” using the information contained on your credit report.
Both scores are based on information in a credit report, but “they predict very different things,” says Christine O’Brien, president of the Insurance Council of New Jersey.
While a credit score predicts the likelihood that a person will repay what is borrowed through loans and credit cards, a credit-based insurance score predicts the likelihood that a person will have future accidents or file claims.
Why do car insurance companies use credit scores?
Most insurers use credit-based insurance scores as a way of gauging the risk that a policyholder might pose. Ninety percent of car insurance companies nationwide use credit information when determining insurance rates, according to the National Association of Insurance Commissioners.
“Research has shown that people who manage their credit well have fewer insurance claims,” says Lynne McChristian, a communications consultant with the Insurance Information Institute.
For example, a 2018 study by the Texas Department of Insurance analyzed policyholder data and found a "strong relationship" between poor credit scores and a higher level of insurance claim activity. Typically, drivers with the worst credit scores file 1.5 to 2 times more claims than those with the best credit scores, says Ben Gonzalez, of the Texas Department of Insurance public affairs office.
That’s likely because people with high credit scores may be less likely to file relatively small claims. For example, if you caused $2,000 in damage to someone’s car, you might opt to pay out of pocket to keep your rates from rising. Someone with a lower credit score might not have the resources to do that, Gonzalez says.
States that don’t use credit scores
It’s important to note that some states don’t use your credit information in setting rates. Three states – California, Hawaii and Massachusetts – have laws that prevent insurance companies from using your credit information to determine your rates.
Other states may have certain protections that prevent your credit record from impacting your auto insurance rates in some circumstances.
For example, O’Brien says the New Jersey Department of Banking and Insurance requires insurers to provide exceptions for consumers whose credit information has been hurt by extraordinary life events, such as:
- Catastrophic illness or injury
- Death of a spouse, child or parent
- Temporary loss of employment
- Identity theft
What’s the best type of car insurance company for bad credit?
While you work to improve your credit, it pays to shop around for auto insurance coverage, because you can still save money, even if you’re considered a high-risk driver. CarInsurance.com data show the average driver with bad credit can trim $2,000 from their yearly policy cost.
Insurers use different methods to assess risk and price policies, so no two companies will raise your rates the same amount. By comparing rates from multiple carriers will save you, can see which one has the lowest price. But not all insurance companies are the same. Here we’ll explain the benefits and drawbacks of comparing rates from a variety of carriers.
Companies that don’t do credit checks
For drivers with bad credit, it may seem like the best way to get cheap rates is to find an insurance company that doesn’t look at credit scores. That’s not typically the best route to take.
Auto insurers who don’t check credit specialize in high-risk drivers. These drivers cost insurers more than drivers with good credit and clean records, because they are more likely to file more claims that insures have to pay. That means even though these companies skip a credit check, they may still be more expensive than traditional carriers, says Penny Gusner, CarInsurance.com consumer analyst.
“If you have bad credit, the best way to find the cheapest rates is to compare quotes from traditional companies as well as those that cater to high-risk drivers,” says Gusner. “Each insurer uses its own formula to set rates. So a traditional company that has a low surcharge for bad credit may be less expensive than a company that primarily serves high-risk drivers and doesn’t do a credit check.”
Insurance companies that don’t account for credit when determining rates are typically smaller, regional carriers that have fewer resources than the big companies. Gusner says be sure to check complaint filings with your state department of insurance website or at the National Association of Insurance Commissioners (NAIC) website. “And be sure to check their financial rating with a company such as A.M Best to be sure they are solvent enough to pay claims,” says Gusner.
Companies that cater to high-risk drivers but check credit
There are also car insurance companies that serve high-risk drivers that use credit scores. These companies may have comparable rates to traditional carriers, or rates that may be even cheaper. Many of these are separately branded companies owned by major carriers. Notable ones include:
- Victoria, owned by Nationwide
- Titan, owned by Nationwide
- The General, owned by American Family Insurance
- Bristol West, owned by Farmers
Some of the major insurance companies own subsidiaries that focus on high-risk drivers. Geico Casualty, owned by Geico, is one example. Progressive also generally provides high-risk drivers non-standard policies at affordable rates, compared to other big players in the industry, says Gusner.
“When you ask for quotes and go to buy a policy, you do so like any other driver,” she says, “but if deemed high-risk, you’d be assigned to the division that serves those drivers, likely without even knowing it.”
The bottom line is that you can still pay a lower rate with some traditional carriers’ coverage for drivers with bad credit.
You’ll see in the table below that Geico’s national average rate for drivers with bad credit is the cheapest among insurers studied by CarInsurance.com.
Bad credit car insurance rates by company
Cheapest car insurance companies for bad credit: Comparing rates to save
To find the best rate, Gusner recommends getting at least three price quotes from multiple insurance companies. CarInsurance.com’s rate analysis found that drivers with bad credit can save, on average, $167 a month by comparing rates.
“Credit checks by car insurance companies are considered a ‘soft pull,’ so they don’t affect your credit score,” says Gusner. “That means you can compare quotes from multiple insurers without having your credit score dinged.”
Below you’ll see how major carriers compare on rates for bad credit drivers in your state.
|State||Company||Monthly rate with bad credit|
|Alaska||State Farm Mutual Auto||$128|
|Alabama||Nationwide Mutual Fire||$169|
|Alabama||Mid-Century Ins Co||$201|
|Alabama||State Farm Mutual Auto||$331|
|Arkansas||Farmers Ins Co||$193|
|Arkansas||State Farm Mutual Auto||$198|
|Arizona||Progressive Advance Ins||$172|
|Arizona||Farmers Ins Co of AZ||$258|
|Arizona||State Farm Mutual Auto||$406|
|Colorado||State Farm Mutual Auto||$197|
|Colorado||Farmers Ins Exchange 2.0||$320|
|Connecticut||State Farm Mutual Auto||$193|
|Connecticut||Foremost Ins Co. Grand Rapids||$386|
|DC||State Farm Mutual Auto||$256|
|Delaware||State Farm Mutual Auto||$298|
|Florida||State Farm Mutual Auto||$225|
|Florida||21st Century Centennial||$279|
|Florida||Allied P&C PPCM||$316|
|Georgia||State Farm Mutual Auto||$332|
|Iowa||Nationwide Agribusiness Ins||$127|
|Iowa||State Farm Mutual Auto||$151|
|Iowa||Farmers Ins Co||$159|
|Idaho||State Farm Mutual Auto||$109|
|Idaho||Farmers Ins Co Of ID||$138|
|Idaho||Allied Depositors PPXM||$142|
|Illinois||State Farm Mutual Auto||$152|
|Illinois||Illinois Farmers Ins Co||$216|
|Indiana||State Farm Mutual Auto||$175|
|Indiana||Illinois Farmers Ins 2.0||$193|
|Kansas||Allied NW Affin PPBM||$130|
|Kansas||State Farm Mutual Auto||$188|
|Kansas||Farmers Ins Co||$211|
|Kentucky||State Farm Mutual Auto||$185|
|Louisiana||State Farm Mutual Auto||$313|
|Louisiana||Progressive Security Ins.||$441|
|Maryland||State Farm Mutual Auto||$203|
|Maine||United Financial Casualty||$117|
|Maine||State Farm Mutual Auto||$135|
|Michigan||State Farm Mutual Auto||$603|
|Michigan||Farmers Ins Exch||$709|
|Minnesota||State Farm Mutual Auto||$152|
|Minnesota||Illinois Farmers Ins||$215|
|Missouri||State Farm Mutual Auto||$153|
|Missouri||Allied P&C PPCM||$156|
|Missouri||Farmers Ins Co||$214|
|Mississippi||State Farm Mutual Auto||$192|
|Mississippi||Progressive Gulf Ins||$245|
|Montana||State Farm Mutual Auto||$170|
|Montana||Allied Depositors PPXM||$229|
|Montana||Mid-Century Ins Co||$277|
|North Carolina||GEICO Govt Employees||$89|
|North Carolina||Progressive Southeastern||$99|
|North Carolina||Nationwide Mutual||$108|
|North Carolina||Allstate P&C||$126|
|North Carolina||State Farm Mutual Auto||$126|
|North Dakota||GEICO General||$91|
|North Dakota||Allied P&C PPCM||$130|
|North Dakota||Mid-Century Ins Co||$143|
|North Dakota||State Farm Mutual Auto||$159|
|North Dakota||Progressive NorthWestern||$188|
|North Dakota||Allstate Insurance||$226|
|Nebraska||State Farm Mutual Auto||$171|
|Nebraska||Mid-Century Ins Co||$204|
|New Hampshire||GEICO General||$90|
|New Hampshire||Progressive Universal||$120|
|New Hampshire||Nationwide Mutual||$132|
|New Hampshire||State Farm Mutual Auto||$134|
|New Hampshire||Allstate F&C||$191|
|New Hampshire||Progressive Northern||$256|
|New Jersey||21st Century Centennial Ins Co||$183|
|New Jersey||Prog Garden State Ins Co||$201|
|New Jersey||GEICO Govt Employees||$220|
|New Jersey||State Farm Ind||$303|
|New Jersey||Allstate NJ P&C||$313|
|New Mexico||Progressive Direct||$154|
|New Mexico||State Farm Mutual Auto||$166|
|New Mexico||GEICO General||$192|
|New Mexico||Allied AMCO||$196|
|New Mexico||Progressive Northern||$205|
|New Mexico||Farmers Ins Co of AZ||$218|
|New Mexico||Allstate F&C||$270|
|Nevada||Mid-Century Ins Co||$252|
|Nevada||State Farm Mutual Auto||$406|
|New York||GEICO General||$103|
|New York||Allstate F&C||$120|
|New York||State Farm Mutual Auto||$236|
|New York||Progressive Casualty||$293|
|Ohio||State Farm Mutual Auto||$137|
|Ohio||Farmers Ins of Columbus||$152|
|Oklahoma||State Farm Mutual Auto||$194|
|Oklahoma||Farmers Ins Co||$222|
|Oregon||State Farm Mutual Auto||$170|
|Oregon||Farmers Ins Co Of OR||$193|
|Pennsylvania||Nationwide Property & Casualty||$170|
|Pennsylvania||State Farm Mutual Auto||$172|
|Rhode Island||State Farm Mutual Auto||$186|
|Rhode Island||Nationwide Mutual||$235|
|Rhode Island||GEICO General||$251|
|Rhode Island||Progressive Direct||$286|
|Rhode Island||Allstate F&C||$382|
|Rhode Island||Progressive Casualty||$409|
|South Carolina||Nationwide Mutual Fire||$151|
|South Carolina||State Farm Mutual Auto||$197|
|South Carolina||GEICO Govt Employees||$205|
|South Carolina||Progressive Northern||$213|
|South Carolina||Allstate F&C||$228|
|South Dakota||GEICO General||$141|
|South Dakota||Allied AMCO PPAM||$151|
|South Dakota||Mid-Century Ins Co||$165|
|South Dakota||State Farm Mutual Auto||$178|
|South Dakota||Progressive Northern||$212|
|South Dakota||Allstate Insurance||$213|
|Tennessee||Mountain Laurel Assurance||$160|
|Tennessee||State Farm Mutual Auto||$166|
|Tennessee||Mid-Century Ins Co||$217|
|Texas||State Farm Mutual Auto||$195|
|Texas||Progressive Cty Mtl||$247|
|Texas||GEICO County Mutual Ins Co.||$295|
|Utah||Mid-Century Ins Co||$192|
|Utah||State Farm Mutual Auto||$320|
|Virginia||State Farm Mutual Auto||$130|
|Virginia||Progressive Gulf Ins||$136|
|Vermont||State Farm Mutual Auto||$195|
|Washington||State Farm Mutual Auto||$169|
|Washington||Farmers Ins Co of WA||$243|
|Wisconsin||State Farm Mutual Auto||$128|
|Wisconsin||Mid-Century Ins Co||$159|
|Wisconsin||Artisan and Truckers Casualty||$176|
|Wisconsin||Allied AMCO PPA||$254|
|West Virginia||GEICO General||$135|
|West Virginia||State Farm Mutual Auto||$160|
|West Virginia||Nationwide Mutual||$185|
|West Virginia||Progressive Max||$204|
|West Virginia||Allstate P&C||$246|
|Wyoming||State Farm Mutual Auto||$144|
|Wyoming||Mid-Century Ins Co||$169|
Also keep in mind that a good credit score alone will not guarantee you a low rate on your car insurance.
“Drivers with good credit may get lower rates, but their driving record is not ignored,” McChristian says.
To get the lowest rates, you need to avoid accidents and violations. Other tips for lowering your rates include:
- Raising your deductible
- Dropping collision and comprehensive coverage on older vehicles
- Bundling your auto, homeowners and other types of insurance with one company
- Consider a usage-based policy, such as SnapShot from Progressive or DriveWise from Allstate
- Asking for discounts, such as paperless, good driver, good student, low mileage
Tips on improving your credit score
Of course, it always makes sense to maintain the highest credit score possible.
“Maintaining a good credit history pays off in many ways, including helping to lower your insurance costs,” McChristian says.
For example, people with good credit typically get the best rates when applying for a home mortgage or a car loan. For those reasons and more, maintaining a good credit score is crucial. A FICO score of 670 to 739, out of 850, is considered “good” credit.
“Think about protecting your credit rating in the same way you’d protect other valuables,” McChristian says.
Among other things, that means:
- Paying bills on time every time
- Thinking twice before opening new lines of credit
- Keeping a low balance on your credit cards, under 30 percent of your limit is recommended, for example $300 for a $1,000 credit limit
- Use your tax refund, if you get one, to pay down debt
- Consider using a secured credit card, which requires a refundable security deposit in exchange for a line of credit, to build a strong credit history
You should also review your credit report for accuracy. You can request free copies of your credit reports from the three national credit reporting agencies through AnnualCreditReport.com,the only authorized website for free credit reports. Follow directions from the agencies to fix any errors. Be aware that credit scores are not included in your reports. You have to pay a fee to the credit reporting agencies to obtain your credit score. The Consumer Financial Protection Bureau advises you check with your credit card company first, as some will share your credit score with you for free or even note it on your monthly statement.
If your credit report is not in the best shape, don’t despair. Handling your finances responsibly should help you eventually turn things around.
“Over time, insurance scores can be improved,” O’Brien says.
-with reporting by: Chris Kissell
CarInsurance.com commissioned Quadrant Information Services to field rates from 10 ZIP codes in each state from up to six major insurers, for a driver with good credit and a driver with poor credit, for full coverage. National average is based on states where credit is used in pricing policies.