Bad credit can affect your life in many ways. You may find it difficult to take out a loan for a car or home, get approved for a new credit card, rent an apartment, and even get affordable auto insurance. Fortunately, there still is car insurance for drivers with bad credit. Although cheap car insurance for bad credit can be really hard to find, there are ways to buy good coverage and lower rates.
Below, we’ll discuss everything there is to know about bad credit auto insurance. From how to compare the top bad credit car insurance companies to improving your poor credit rating to getting the best insurance rates so you can afford coverage, here’s how to buy a policy when you have a poor credit score or history.
How Bad Credit Affects Car Insurance
For starters, getting a car insurance quote does not affect your credit score. Insurance companies do not make a hard credit inquiry when calculating insurance rates; instead, they pull what is known as a credit-based insurance score with a soft inquiry. Just as your credit history and FICO score determine your overall creditworthiness for a loan, your auto insurance score is a rating factor that will determine the premiums you pay to insure your car. This is because insurance providers have found that drivers with bad credit are more likely to file a claim whereas people with good credit, on average, file fewer and less costly claims.
In states that allow companies to use your credit score to calculate rates, drivers with poor or bad credit pay an average of $1,300 per year, or roughly $110 per month, more in premiums.
Though not all insurers will consider your overall credit history, about 90% of insurance companies do. It is legal for companies to charge higher rates for bad credit in every state but three; California, Hawaii, and Massachusetts have banned the practice. For this reason, it can be difficult to find car insurance companies that don’t check credit.
As mentioned earlier, your credit score also affects what is known as your auto insurance score, which is sometimes simply called your insurance credit score. Aside from your reported credit history, your auto insurance score considers factors like past tickets, accidents and claims, your age, and other rating variables to assign you a number. Generally, a score of 700 or more is good, but the different bureaus (FICO, LexisNexis, TransUnion) each have a different score range and system. However, higher is always better!
If your number is below 500, you will need to shop around to get car insurance for bad credit. Due to the increased risk to the company, the cost of these policies are much higher than standard coverage.
Difference in Car Insurance Rates For Good and Bad Credit
Bad credit car insurance is expensive. In fact, drivers with poor credit pay almost $1,300 more per year in premiums than drivers with good credit history. Furthermore, the cost of insurance for drivers with low credit scores is worse in states like Michigan, Kentucky, New Jersey, New York, and Louisiana. On the other hand, there is little difference in rates between drivers with good and bad credit in North Carolina, Iowa, Wyoming, Virginia, South Dakota and Nebraska.
Below, check out how much more people in your state with bad credit pay for car insurance.
|State||Difference in Annual Rates||Cost of Monthly Coverage|
Does Bankruptcy Affect Car Insurance?
Yes, bankruptcy can affect car insurance rates. How much a bankruptcy will impact your premiums depends on your credit history and score before. If you had good credit and suddenly experience financial troubles, then your cost of coverage may increase significantly. However, if you already had bad credit car insurance, then higher prices won’t be as noticeable.
If you already have insurance, continue making payments. Your insurance company won’t adjust your premiums higher until renewal. Moreover, some companies only check a driver’s credit once a year, so you may have time to improve your score and lower your rates.
Otherwise, a bankruptcy will hurt your credit rating and stay on your record for up to 10 years. During this time, companies that use a credit check as part of their risk assessment and rates calculations will quote you increased premiums.
Cheap Car Insurance With Bad Credit
The best car insurance for bad credit can be defined as a policy that combines a good amount of coverage to suit your needs with a premium you can afford. While finding cheap bad credit auto insurance may require shopping around, comparing rates and completing an insurance comparison, there are ways to get affordable coverage.
To lower your insurance premiums, there are a few things you can do to improve your credit and get dirt cheap car insurance despite your current rating. Here’s how a higher or better credit score can help you obtain cheaper premiums.
Move To Another State
Though picking up and moving to another state to save money on car insurance might seem extreme, it is highly effective, meaning it could be a great solution for you depending on your needs. You could move to one of the three states where it is illegal for insurers to use your credit history against you, and this will save you about $1,000 per year. In other states, such as Michigan, your credit history could add $3,300 to your annual costs for one driver.
Drive An Old, Used Car
Another factor to consider is that the higher the value of your car, the more expensive your car insurance will cost overall. This means that you might think about trading in your newer vehicle worth tens of thousands of dollars for an older, but still reliable model worth only a few thousand. Your rates could decrease sharply almost immediately. This is one of the fastest and most effective ways to reduce the costs of insurance for bad credit.
Compare Bad Credit Car Insurance Premiums
Just like traditional insurance, different companies will charge different prices when it comes to drivers with poor credit. In fact, you could save hundreds, if not thousands, of dollars by taking the time to do some research. Be sure that you compare quotes, companies, types of coverage offered, and the amount of protection you are buying.
Reducing your coverage limits and increasing your deductibles can lower your premiums. Ultimately, a thorough car insurance comparison is the only way to find the cheapest rates with bad credit.
Talk To Your Insurer
Depending on the reasons for your poor credit score, you may be able to get cheap car insurance by simply explaining the circumstances to your insurer. For example, if you have experienced some sort of major life event that hurt your credit, meaning your low credit score is not the direct result of bad financial habits, the company may feel sympathetic enough to keep your rates low.
The types of events that may allow for a grace period include natural disasters (fires, hurricanes, tornadoes, etc.), unexpected job loss or layoff, or even the death of someone in your immediate family.
Bad Credit Car Insurance Companies
There are several companies out there that cater almost exclusively to people with low credit scores who need affordable car insurance. After all, millions of drivers have bad credit ratings, so this creates a market for insurance companies who are willing to accept a little more risk.
Though 90% of insurance companies in 47 states base part of your premium costs on your credit history, this means that 10% of them won’t. Take the time to seek out the best bad credit car insurance companies and find out what kind of coverage and prices they can offer. You might be surprised to discover that the best auto insurance for drivers with poor credit comes from a small but reputable company offering excellent customer service.
How To Improve Your Car Insurance Score
Finally, here’s what you can do to improve your auto insurance score. A higher credit-based insurance rating will get you cheap rates and good coverage from the top companies.
- Make sure your credit report is accurate. If you’ve recently worked to fix your credit and improve your score, the results may not have been updated yet. However, reviewing your credit report can also uncover mistakes.
- Pay your bills on time. Keeping all your financial and credit accounts in good standing is absolutely critical to maintaining a high score. Since late payments and collections generally hurt you the most, start with better financial management.
- Keep your credit card balances low. Maxing out your credit cards and accumulating credit card debt may increase your insurance rates.
- Avoid unnecessary credit checks. Too many credit inquiries in a short amount of time can lower your score. Although there is a difference between hard and soft inquiries, if you are comparing home or auto lenders, it is important to only allow the finance company to check your credit when you are serious about applying for a loan.
Get No Credit Check Car Insurance Quotes
To find cheap car insurance rates when you have bad credit, you’ll need to get quotes from as many companies as possible. To start a no credit check car insurance quote, just enter your zip code to compare rates and coverage options from some of the top insurers in the US.