Getting car insurance is crucial to keep yourself and your vehicle protected. It also protects the 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 factors 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 auto insurance 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 score 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. You can get car insurance quotes from different insurance companies, such as Allstate and Progressive, two of the best car insurance providers for bad credit.
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 Get Car Insurance for Poor-Credit Borrowers?
You have two options: no-credit-check auto insurance or the usual insurance companies.
1. No-Credit-Check Auto Insurance
If you have bad credit, it’s not a dead-end road for you in getting car insurance. You can opt for no-credit-check auto insurance providers, 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 insurance companies that check credit scores. Some providers may only want to provide you with the state minimum liability 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.
Here are some insurance companies that provide coverages without a credit check. In general, they tend to be more expensive than those with credit check:
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.
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.
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.
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.
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.
2. Top Car Insurance for Bad Credit
Getting insurance from companies that factor in credit history can be cheaper than those with no credit checks. 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
Are There Other Ways to Save on Car Insurance?
While you can’t control some of the factors that determine the insurance premiums 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 receive 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 a less expensive car insurance coverage. 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 car 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 loan 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 scores. 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.
Nobody wants to have bad 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 your chances of getting affordable car insurance premiums.
But car 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 quotes from insurance providers because the rates change depending on your circumstances.
Are you looking for the best car insurance for bad credit? What steps have you taken to repair your credit score and save on car insurance premiums? We’d love to hear from you in the comments section below!