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Getting car insurance is crucial to keep yourself and your vehicle protected. It also protects other motorists and their vehicles in case of an accident that you’re at fault. But what if you have bad credit? Does that mean no car insurance company will accept you?
Can you get car insurance with bad credit? The short answer is yes, but that may not be cheap. With bad credit, you could be paying a much higher premium than those with good credit because you’re deemed a high-risk driver.
According to a study by the Federal Trade Commission, drivers with poor credit are more likely to file insurance claims, so they’re expensive to insure.
In this post, let us help you understand the impact of your credit score on your car insurance. We’ll also explore how you can save on car insurance rates and what your options are even with a bad credit score. Let’s dive in!
How Your Credit Score Affects Car Insurance Approval
Lenders check your credit score to gauge your creditworthiness, and that’s also true with car insurance. Only in Hawaii, California, and Massachusetts is it prohibited to base car insurance rates based on credit scores. The rest of the states in the country factor in your credit score in determining the premium you’ll have to pay.
When you have a bad credit score (below FICO 670), you’ll likely pay significantly higher insurance premiums than those with good credit scores. To give you an idea, here are a few examples of average annual premiums when credit scores are factored in:
- Exceptional Score: $1,066
- Good Score: $1,321
- Poor Score: $2,509
Did you notice how the premium doubles for poor credit scores compared to the rate for those with good and exceptional scores? The rate varies per state, and in some cases, bad credit can mean a car insurance rate that’s three times more expensive.
Other factors that affect car insurance rates include the following:
- Marital status
- Address (State, City, ZIP Code)
- Driving experience
- Driving history
- Past insurance claims
- Type and model of vehicle
- Car safety features
- Insurance coverage
These factors affect how risky you are to insure. For instance, young drivers are seen to be reckless or more adventurous on the road, increasing their risk of getting into an accident.
Where you live, specifically your ZIP code also matters because of the perceived crime rate, theft incidents, number of uninsured motorists in your area, the amount of traffic on the road, and natural weather conditions.
Where Can You Find Low-Cost Auto Insurance For Bad Credit?
Getting insurance from companies that factor in credit history can be cheaper than those with no credit check car insurance. Here are the top options for car insurance even with bad credit and their average annual premiums:
- USAA: $1,398
- GEICO: $1,676
- Nationwide: $1,760
- Travelers: $2,411
- State Farm: $2,476
- Farmers: $3,262
- MetLife: $4,208
Other companies that provide the cheapest car insurance premiums are:
- Country Financial in Illinois
- Southern Farm Bureau in Louisiana
- Allied in Missouri
- Concord Group in New Hampshire
- New Jersey Manufacturers in New Jersey
What is No-Credit Check Car Insurance?
As its name suggests, no-credit-check car insurance doesn’t require credit checks. If you have a poor credit score, it’s not a dead-end road for you in getting car insurance. You can opt for a no-credit-check auto insurance company, although it’s not that simple.
One downside to that is that you could end up paying more than the standard policy that you can obtain from car insurance companies that check credit scores. Some providers may only want to provide you with the state minimum liability insurance coverage and nothing more. Still, it’s worth checking as you have limited options. The key to finding the best rate is to get car insurance quotes and compare them before you sign up.
Where to Find Car Insurance Companies That Do Not Check Credit?
Here are some insurance companies that provide coverages without a credit check. In general, these best car insurance for bad credit tend to be more expensive than those with credit checks:
CURE (Pennsylvania and New Jersey)
CURE’s car insurance policy is based mainly on your driving record. Other factors, such as age and ZIP code, are also considered. An average driver can save up to 50% on policy rates. (Visit Site)
Allstate (Colorado, Michigan, New Jersey, New York, Arizona, Illinois, and Ohio)
Allstate has a usage-based insurance program called Drivewise. So, instead of your credit history, it looks at your driving behavior and mileage in determining the premium. (Visit Site)
Progressive (Nationwide except Florida and Alaska)
Progressive also offers usage-based insurance called Progressive Snapshot, which rewards you for good driving. Most drivers save around $145 a year for driving safely. However, remember that high-risk driving can increase your insurance rate. (Visit Site)
Dairyland (nationwide and District of Columbia)
Dairyland specializes in high-risk drivers, and it doesn’t penalize you for having poor credit. Drivers with bad credit can still save up to 70% on auto insurance premiums. (Visit Site)
Direct Auto Insurance (Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, Texas, & Virginia)
Direct Auto Insurance also caters to high-risk drivers who can’t find insurance because of poor credit or driving record.
Are there States that Don’t Require Credit Checks When Applying for Insurance?
Yes, there are three states that don’t require credit checks when applying for an auto insurance policy – California, Hawaii, and Massachusetts. These states have laws that forbid insurance companies from checking the credit score of applicants.
On the other hand, you’ll pay higher insurance rate premiums if you live in the other 47 states and have bad credit when you apply for an insurance plan. How much you need to pay will vary from one state to another.
Even if you have no credit history, insurers will still consider you risky like those with bad credit scores. You will be asked to pay higher premiums like those with bad credit.
Why Does Your Credit Score Affect Your Car Insurance Rates?
According to an FTC study, insurance companies consider people with low credit scores as higher-risk drivers and are more likely to file an insurance claim. Meanwhile, they believe those with higher credit scores meet their monthly dues and are less likely to commit insurance fraud.
Insurance companies also think that individuals with higher credit scores are more likely to pay for minor damages using their own money rather than file an insurance claim. If the insurer considers you as high risk, as with people with bad credit, then you’ll have higher monthly premiums.
Can You Negotiate Auto Insurance Rates If You Have Bad Credit?
Unfortunately, auto insurance rates aren’t negotiable. You may have a chance of getting low-cost auto insurance if you improve your credit score.
Are There Other Ways To Save On Car Insurance?
While you can’t control some of the factors that determine the premiums most insurance companies charge you, you can take steps to cut the rates.
- Shop Around and Compare Rates
Get quotes from different companies and compare them to get the best rate for your situation. When you visit their websites, you can get a quote by entering your information and receiving your quote via email.
- Ask for Discounts
You can get discounts from insurance companies depending on what they offer, so just ask. For instance, Dairyland offers a multi-car discount, payment frequency discount, anti-theft discount, and homeowners discount.
- Choose a Less Comprehensive Coverage
Raise your deductible and remove coverage that you probably won’t need to lower your premium.
- Consider the Car Model
You may want to choose a model that has less expensive car insurance. Naturally, the more expensive the car is, the costlier it is to ensure. You may also consider buying a used car, which will have a lower insurance premium.
- Drive Carefully
Keep your driving record clean by driving safely on the road and avoiding accidents. The more careful you are, the less likely you are to file a claim, so the less risky insurance companies deem you to be.
- Pay an Annual Premium in Full
Some companies will provide you an upfront discount when you pay your annual premium in full instead of as a monthly installment.
- Pay Bills Timely and Consistently
Improve your credit rating by paying bills on time. Also, don’t miss any payment. One missed payment can already cause a dip in your credit score.
How Can You Improve Your Credit Score?
If you’re still having a problem getting bad credit low-cost auto insurance that you can afford, you should improve your credit rating first. By doing the following, you can increase your scores by a few points within a few weeks. Here are some tips:
- Reduce your credit utilization. Aim for less than 30% credit utilization every month. You also want to look for additional sources of income, such as a side hustle to help improve your debt-to-income ratio.
- Pay your monthly debt balances in full. Keep your balances low by paying as much debt as you can. When you settle your outstanding debt immediately, you can also save some money.
- Don’t open or apply for new credit lines. New loans or credit applications can hurt your credit score, so don’t apply for a new one at least six months after getting your car loan.
- Dispute any errors on your credit report. Some records can stay up to 7 years on your credit history based on the statute of limitations, but you can remove them early by requesting corrections with the three national credit bureaus. Visit Experian, TransUnion, and Equifax websites to request your free copy of the credit report.
- Pay your bills in full and on time. Timely payments can boost your credit score over time.
- Keep your old credit cards open but don’t use them. The older your credit line is, the better it is for your credit score. So, keep them open even when you don’t use them at all.
- Seek the help of a credit counselor. A professional can help you create a personalized credit repair plan. You can start looking for help here, some of which are free.
Wrapping Up Cheap Car Insurance for Drivers with Bad Credit
Nobody wants to have poor credit, but sometimes, life circumstances can get in the way. You’ll have to face the negative impacts of poor credit on your ability to get financings, such as car loans or home mortgages. It can also affect the chances that you’ll find affordable car insurance premiums.
You’ll find auto insurance companies that do not check credit but their premiums are higher than those that check your credit history.
But auto insurance is necessary, and you can’t skip it without taking huge risks of meeting a claim that will cause financial hardship. So, to ensure that you get the coverage that you need and can afford, keep in mind our tips above.
It’s also best to take steps to rebuild your credit first before you get insurance. Get cheap auto insurance quotes from insurance providers because the rates change depending on your circumstances.
Are you looking for the best car insurance companies for drivers with bad credit? What steps have you taken to repair your credit score and save money on a car insurance premium? We’d love to hear from you in the comments section below!