Car Insurance for Bad Credit: Find Affordable Coverage

Drivers with poor credit might pay up to 137% more for car insurance, based on where they live¹. Finding affordable car insurance for those with bad credit is tough, but it's doable. On average, drivers with poor credit pay about $4,063 a year for full coverage. Those with the minimum coverage pay around $1,165 annually¹.

In most states, except California, Hawaii, and Massachusetts, insurers can use credit history to set premiums¹. They use this history to create a credit-based score, which affects rates for those with poor credit². Studies show that drivers with poor credit tend to file more claims, leading to higher rates for them².

But, some states like Colorado, Maryland, Michigan, Oregon, Texas, and Utah have laws that limit how insurers use credit for auto insurance¹. In places like California, Hawaii, Massachusetts, and Michigan, insurers can't use credit history to set premiums¹². Even with these rules, finding affordable insurance for high-risk drivers or those with sub-prime credit is still possible with the right strategy.

Key Takeaways

• Drivers with poor credit pay significantly more for car insurance compared to those with good credit.
• Most states allow insurers to use credit history to determine premiums, with some exceptions and limitations.
• Finding affordable car insurance for bad credit involves comparing quotes from multiple providers and considering alternative options.
• Some states have laws protecting consumers from being denied coverage solely based on credit history.
• Improving your credit score can help lower your car insurance rates over time.

Understanding Car Insurance and Credit Scores

When looking for car insurance for those with poor credit, knowing how credit scores affect premiums is key. Insurance companies use a special score, not the same as the credit scores for loans, to set rates. This score helps them figure out the risk and set premiums for those with poor credit.

How Credit Scores Affect Car Insurance Premiums

In the U.S., most states use credit scores to set auto insurance rates³. Insurance firms think credit scores show if someone might file a claim. Studies link credit history to driving habits. So, drivers with low credit scores often pay more for insurance.

A study looked at rates in 46 states and found poor credit drivers paid about $1,180 more a year⁴. But, the effect of credit scores on rates changes by state and insurer. Some states like California and Michigan don't let insurers use credit scores for rates⁴.

Differences Between Regular Credit Scores and Credit-Based Insurance Scores

Regular and insurance credit scores both use credit report info, but differently. Payment history is a big part of an insurance score, unlike regular scores. Credit mix also counts less in insurance scores³.

Insurance companies use these scores from FICO since the 1990s to predict risk³. They look at payment history, debt, credit history length, and more to set scores³.

Factor Credit-Based Insurance Score Weight Regular Credit Score Weight Payment History 40% 35% Credit Mix 5% 10%

Getting an auto insurance quote is a soft inquiry and won't hurt your credit score³. But, a low credit score can still mean higher premiums for those with poor credit.

States That Allow Credit-Based Insurance Scoring

Most states let insurance companies use credit scores to set car insurance rates. But, some states have rules against this. In California, for example, insurers can't use credit scores for car or homeowners insurance rates⁵. Massachusetts also stops auto insurers from using credit for rates or decisions, but they can't use it for homeowners insurance rates⁵.

Hawaii limits credit use, not allowing auto insurers to use credit scores for premiums. But, credit can affect homeowners insurance rates⁵. Maryland has different rules. Home insurers can't use credit history for rates, but auto insurers can use it for new policies but not to deny coverage⁵.

In Michigan, using credit to deny, cancel, or renew policies is banned. Credit can't be the main factor in setting rates⁵. Nevada has limited credit-based insurance scores during the pandemic, preventing insurers from using negative credit events for policy decisions⁵.

Oregon and Utah have their own rules. Oregon stops insurers from canceling or denying coverage based on credit. But, they can use credit for underwriting and rating policies⁵. Utah lets insurers use credit at first for auto policies but limits it as the main reason for decisions. It also stops using credit to cancel or renew policies after 60 days for regular customers⁵.

About 95% of auto and 85% of homeowners' insurers use credit scores in allowed states for underwriting⁶. But, many consumers don't understand these scores or why they affect insurance costs⁶. Some worry that these scores unfairly target minority and low-income groups⁶.

When looking for car insurance with bad credit, compare quotes from different providers. The effect of credit scores on premiums varies by state and insurer⁷. Knowing your state's rules and how credit affects your rates can help you find affordable coverage.

Average Car Insurance Costs for Drivers with Poor Credit

Having a low credit score makes finding affordable challenged credit driver insurance hard. Drivers with poor credit pay about $1,500 more each year for insurance than those with excellent credit⁸. In fact, they pay almost twice as much, with yearly premiums around $2,800 compared to $1,300 for excellent credit drivers⁸.

Comparing Rates for Good Credit vs. Poor Credit

There's a big difference in car insurance costs between drivers with good and poor credit. Drivers with good credit pay about $2,008 a year for full coverage. But those with poor credit pay almost double that, at $3,829 annually⁹. This means drivers with poor credit could save thousands over time by finding better deals.

Credit Score Range Average Annual Premium Very Poor (under 580) $2,834 Fair (580 to 669) $2,272 Good (670-739) $1,898 Very Good (740 to 799) $1,591 Exceptional (800 to 850) $1,330

The table shows that premiums go down as credit scores get better⁸. Just improving your credit by one tier could cut your car insurance costs by about $375 a year⁸.

Premium Increases by State for Poor Credit Drivers

Poor credit affects car insurance rates differently across states. In Michigan, drivers with poor credit pay 263% more, or over $1,900 a year, than those with excellent credit¹⁰. Michigan is the worst state for drivers with poor credit, with an average annual premium of $2,667, while excellent credit drivers pay $734¹⁰.

In New York, drivers with poor credit pay $2,097 a year, while excellent credit drivers pay $730¹⁰. Florida is also tough, with poor credit drivers paying $2,000 a year and excellent credit drivers paying $822¹⁰. The increase in premiums for poor credit ranges from 46% to 137% across states⁹.

Shopping around and comparing rates can save drivers with poor credit hundreds or thousands of dollars a year⁸. By looking at different options and discounts, you might find cheaper coverage despite your poor credit.

Best Car Insurance Companies for Drivers with Bad Credit

Having a low credit score makes finding affordable car insurance tough. But, many top insurance companies offer good rates for those with bad credit. About 95% of insurers use credit scores to judge risk¹¹. Some companies are great for those looking for affordable options despite their credit.

USAA

USAA is often the cheapest for drivers with bad credit¹². They charge an average of $2,737 a year, or $228 a month, for poor credit scores. But, you need to be in the military or a veteran to join USAA.

Geico

Geico is another good choice for those with low credit scores. They offer rates of $2,592 a year, or $216 a month, for poor credit. Geico has competitive rates and many discounts to lower your costs.

Nationwide

Nationwide has affordable insurance for drivers with bad credit, costing about $2,072 a year, or $173 a month. They also have a program called Nationwide SmartMiles that doesn't check your credit¹².

Insurance Company Full Coverage Monthly Rate Liability Only Monthly Rate Country Financial $48 $20 Mile Auto $121 $67 Nationwide $185 $84 Auto-Owners $122 $56

The table shows average monthly rates for drivers with bad credit¹¹. Progressive is more expensive at $3,977 a year, or $331 a month. But, they're still a top choice for those with low credit scores.

When looking for car insurance with bad credit, think about more than just your credit score. Your location, age, driving record, and gender also affect your rates¹². By comparing quotes and looking for discounts, you can find the best coverage for your needs.

Tips for Finding Affordable Car Insurance with Bad Credit

If you're having trouble finding affordable car insurance because of poor credit, don't lose hope. Even though drivers with lower credit often file more claims, leading to higher premiums¹, there are ways to get cheaper coverage.

Shop Around and Compare Quotes

Shopping around and comparing quotes from at least three companies is a smart move¹³. Rates can differ a lot between insurers. So, it's key to look at your options. Even with bad credit, some companies might offer better rates than others.

Consider Usage-Based Insurance Programs

Telematics programs track your driving habits and reward safe driving, which could lower your rates if you're careful¹³. These programs use devices or apps to monitor things like speed, braking, and mileage. Pay-per-mile insurance is another option that charges based on how much you drive. This could save money if you work from home or drive less often¹³.

Look for Discounts

It's important to look for discounts when you're searching for affordable car insurance with bad credit. Discounts and their amounts can vary a lot between companies. So, it's good to ask about any discounts you might qualify for. Some common discounts include:

• Multi-vehicle discounts for insuring more than one car with the same company
• Student discounts for good grades or attending school away from home
• Military discounts for active-duty service members or veterans
• Good driver discounts for a clean driving record

Nationwide and GEICO are often the cheapest options for drivers with poor credit, with Nationwide averaging $1,374 a year for full coverage². But, it's still smart to compare quotes from several providers to find the best deal for you.

Actuarial data shows that drivers with poor credit are more likely to file insurance claims, leading to higher insurance rates for this group².

By shopping around, looking into usage-based programs, and using discounts, you can find cheaper car insurance even with bad credit. Don't let your credit score stop you from getting the coverage you need to stay safe on the road.

What to Do if You're Denied Coverage Due to Poor Credit

If car insurance companies deny you or charge high prices because of your poor credit, don't give up hope. You can get car insurance through your state's assigned risk pool¹⁴. States make sure car insurance companies cover high-risk drivers, including those with bad credit¹⁴.

To get coverage through the assigned risk pool, you'll need to work with an agent from a company that denied you¹⁴. An agent can help you get high-risk auto insurance or find another provider that can cover you¹⁴.

Assigned risk pool coverage, or non-standard car insurance, usually costs more because drivers in this group are riskier¹⁴. But, if you drive safely for a year and have four years of driving experience, you might get a discount¹⁴.

Through the assigned risk pool, you can get different types of auto insurance, like:

• Bodily injury liability
• Property damage liability
• No-fault coverage
• Uninsured motorists insurance
• Optional coverages up to specific limits¹⁴

Insurance policies through the assigned risk pool must last at least three years before they can be canceled¹⁴. After three years, you can look for a voluntary market policy or apply again to the assigned risk pool¹⁴.

Getting high-risk auto insurance through the assigned risk pool might cost more. But, it's a way for drivers with poor credit to get the coverage they need and follow state laws. As you improve your credit score, you might find better insurance options.

Improving Your Credit Score to Lower Car Insurance Rates

When looking for car insurance with bad credit, know that bettering your credit score can save you a lot on premiums. Drivers with poor credit pay about 97% more for full coverage car insurance than those with excellent credit¹⁵. By improving your credit, you could save hundreds each year on your car insurance¹⁵.

To boost your credit score, keep your credit use under 30%, ideally under 10%¹⁵. This means keep your credit card balances low compared to your limits. Also, always pay your bills on time, as this part of your credit score is 35%¹⁶.

Checking your credit reports for mistakes is also key to improving your credit. In 2021, over a third of Americans found errors on their reports¹⁵. Fixing these mistakes can lift your credit score. Tools like Experian Boost™ can also help by adding points for on-time payments of bills not usually reported¹⁵.

While improving your credit, compare car insurance quotes from different providers. Many insurers offer discounts for bundling policies, like auto with renters or homeowners insurance¹⁵¹⁷. You might also get discounts for safety features, memberships, or how you pay¹⁷.

Think about joining usage-based car insurance programs to save 20-30% by driving safely¹⁵. Paying your auto insurance in one lump sum could save you up to 12%¹⁵.

Improving your credit score takes time, but every step helps lower your car insurance costs. By maintaining good credit habits and looking for discounts, you can find affordable insurance even with bad credit.

Car Insurance for Bad Credit: Frequently Asked Questions

When looking for car insurance for bad credit, you might wonder how your credit score affects your rates and coverage options. In most states, your credit score can influence your insurance costs. Drivers with poor credit often pay much more for insurance¹. On average, those with poor credit pay almost twice as much as those with good credit¹³.

Insurers can deny you coverage if your credit history is poor in some states. But, in places like California, Hawaii, and Massachusetts, they can't use credit scores this way¹¹³. If you have poor credit and are finding insurance too expensive, look for companies that focus on sub-prime auto coverage. Companies like Nationwide and GEICO often have the best rates for drivers with bad credit².

Improving your credit score can lead to lower insurance rates later. It might take 1-2 years to see changes, but there are steps you can take. Paying bills on time, keeping your credit use low, having a mix of credit types, and avoiding too many credit checks can help. As your credit gets better, shop around for insurance quotes to find the best deals.

FAQ

How does credit score affect car insurance rates?

Insurance companies look at credit scores to set premiums. A better credit score means a lower rate. But, a poor credit score can make insurance more expensive, sometimes doubling the cost.

Can you be denied car insurance for poor credit?

Yes, poor credit can lead to denial of coverage in most states. But, if you're denied, you can get insurance through your state's assigned risk pool.

How long does it take to improve your credit score?

Improving credit after a setback usually takes 1-2 years. It depends on your situation. To boost your score, pay bills on time, keep credit use low, and limit new credit checks.

What are the best car insurance companies for drivers with bad credit?

For drivers with poor credit, top insurance companies include USAA, Geico, Nationwide, and Progressive. USAA offers the cheapest rates at $2,737 a year or $228 monthly for poor credit drivers.

How can I find affordable car insurance with bad credit?

To get cheaper rates, shop around and compare quotes from at least three companies before renewing. Consider usage-based and pay-per-mile insurance options. Finding the right discounts is also crucial, as they vary by company.

What is the difference between regular credit scores and credit-based insurance scores?

Both types of scores use credit reports but weigh factors differently. For example, payment history counts for 40% in insurance scores but 35% in regular scores. Insurance scores predict risk, while regular scores look at creditworthiness.

How much more do drivers with poor credit pay for car insurance on average?

Drivers with good credit pay about $2,008 yearly for full coverage. Those with poor credit pay $3,829, almost double. The increase varies by state, from 46% to 137%.

Source Links

1. https://www.bankrate.com/insurance/car/car-insurance-for-bad-credit/
2. https://www.moneygeek.com/insurance/auto/how-to-get-car-insurance-with-bad-credit/
3. https://www.autoinsurance.com/articles/credit-scores/
4. https://www.forbes.com/advisor/car-insurance/auto-insurance-score/
5. https://www.experian.com/blogs/ask-experian/which-states-prohibit-or-restrict-the-use-of-credit-based-insurance-scores/
6. https://content.naic.org/insurance-topics/credit-based-insurance-scores
7. https://www.moneygeek.com/insurance/auto/car-insurance-cost-by-state-and-credit/
8. https://www.wsj.com/buyside/personal-finance/car-insurance/does-credit-score-affect-car-insurance
9. https://www.nerdwallet.com/article/insurance/how-much-is-car-insurance
10. https://money.com/bad-credit-higher-car-insurance-premiums/
11. https://insurify.com/car-insurance/driver/credit/bad-credit/
12. https://insurify.com/car-insurance/driver/credit/no-credit-check/
13. https://www.marketwatch.com/guides/insurance-services/car-insurance-for-bad-credit/
14. https://www.dfs.ny.gov/consumers/auto_insurance/trouble_getting_coverage
15. https://www.cnbc.com/select/credit-score-save-on-car-insurance/
16. https://blog.surroundinsurance.com/how-to-improve-your-credit-score-to-lower-car-insurance-rates/
17. https://www.experian.com/blogs/ask-experian/how-to-lower-insurance-rates-if-you-have-poor-credit/