Personal Finance Expert
Tyron Jones is a finance expert who has operated within the auto insurance business for more than 10 years. He has written many other finance related articles for a number of prominent publications.
While most people are aware that a credit score can impact the ability to take out a personal loan, successfully apply for a credit card, or refinance a home, many people are surprised to discover that credit score can affect your ability to obtain a favorable auto insurance policy. The reason is that many car insurance companies use your credit rating to calculate an insurance credit score. After the calculation is complete, the resultant insurance credit score can either influence or even determine approval for the best car insurance policies.
The practice of insurance companies checking an applicant's credit report began in the 1990s. But instead of relying on the given credit score (e.g. standard FICO score or VantageScore) to make a final decision, insurance companies use data on a credit report to tabulate a unique insurance credit score. In other words, this “insurance score” relies on information from your credit report but weighs these factors differently and produces a number based on the industry's own measuring rubric. As a result, applicants may discover that their insurance credit scores may vary widely from their individual FICO scores.
Because of this practice, it is important to have a good idea of your insurance credit score before shopping for car insurance. You can use this information to correct any suspected errors, find auto insurance policies within your range, or to compare quotes from no-credit-check car insurance companies.
What If I Have a Low Auto Insurance Credit Score?
Most auto insurance companies check your credit report when reviewing your application. The companies then use this information determine your insurance credit score and to decide whether to offer you a standard insurance policy.
Moreover, companies that do not check your credit report usually include much higher premiums in their proffered insurance policies. These high premiums are meant to “protect” the insurance company (since the industry considers it risky to sell insurance policies without checking credit reports first). In these states, it is best to use an auto insurance comparison tool to get the best rates for your location or zip code, age, vehicle type, and driving history.
The good news is that there are steps you can take if you have a poor credit score (which can result in a generally low auto insurance credit score). First, understand that location helps determine whether a bad credit score will adversely affect your insurance rates at all. If you live in California, Hawaii, or Massachusetts, these three states have passed laws prohibiting car insurance providers from checking your credit score.
For the 47 remaining states, however, your credit score can affect your cost of auto insurance – even if you have an excellent driving record. In other words, drivers with bad credit tend to receive higher insurance rates than drivers with good to excellent credit (regardless of driving history). Since the amount of difference varies by state, you can check Consumer Reports or another consumer advocacy organization to get an estimate on average car insurance premiums for your state.
Three Types of Car Insurance for Drivers With Bad Credit
After understanding how much you can expect to pay for standard auto insurance rates, you should also know the three types of car insurance for bad credit.
1. No-Credit-Check Auto Insurance Companies
No-credit-check car insurance companies forego reviewing your credit altogether. Although some of these companies are on the expensive side in exchange for “forgiving” your credit, others are quite affordable. Consider using an online comparison tool to confirm whether these types of companies operate in your location. For instance, Cure Auto Insurance Company offers no-credit-check auto insurance in Pennsylvania and New Jersey. Likewise, Dillo (Empower Insurance) sells no-credit-check auto insurance to car owners in southwestern states.
Unsure of whether an auto insurance company intends to check your credit? As a general rule, car insurance companies that do not request your social security number (SSN) are no-credit-check companies. Auto insurers need the number to run your credit score. If they do not request this, you can expect them to refrain from pulling your credit report.
2. Bad Credit Auto Insurance Companies
If you want to explore other options, choose to become knowledgeable about car insurers popular for drivers with bad or poor credit. For example, GEICO has a reputation for approving drivers with lower credit scores. In addition to reputation, be sure to compare bad credit auto insurance rates relative to your location. For instance, Farmers Insurance tends to offer reasonable rates for bad credit auto insurance in Illinois, and American Family Insurance may offer deals to drivers in the Pacific Northwest.
Even if a company is not famous for offering “bad credit auto insurance” plans, the insurer may still sell a nonstandard auto insurance policy. These policies are slightly more expensive than those offered to drivers with excellent credit, but they are still more economical than other types of bad credit car insurance. For example, you can check Access Insurance for nonstandard policies in Arizona or Indiana. If you live in California, try inquiring with Alliance United for rates on a nonstandard car insurance policy.
Other car insurance providers that may offer nonstandard auto insurance policies nationwide may include the following:
- Dairyland Insurance
- Direct General
- Infinity Insurance
- SafeAuto Insurance
- United Auto
3. Usage-Based Auto Insurance Companies
Increasingly, many car insurance providers now sell usage-based auto insurance coverage. Offered as a compromise between compulsory auto insurance and unfairly high rates, this type of policy provides a rate quote based on driving habits and vehicle usage (instead of non-driving factors like consumer credit scores).
To offer usage-based auto insurance, a car insurance company may use telematics technology to calculate your rate. Telematics devices either install directly onto your vehicle, or more commonly, as a connected app on your smartphone. These location-based apps track when, where, and how often you drive. Insurers then use this information to calculate the risks associated with your driving habits and can offer you a policy accordingly.
Most of the major auto insurance providers (such as Allstate, Progressive, and State Farm) have usage-based car insurance plans in addition to their mainstream, credit-based policies. Although new usage-based policies may be slightly more expensive than “excellent credit” car insurance, they still represent a much better rate than most alternatives. Plus, companies often offer a signup discount for entering the insurance contract. And if you demonstrate good driving habits, some companies will reward you by lowering your premiums over time.
In addition to companies that offer optional usage-based car insurance plans, there are innovative companies now solely selling usage-based car insurance. Often considered the car insurance equivalent of mobile-only banking, these insurance policies work by first installing an app on your smartphone. After going for a test drive, these usage-only companies calculate a set premium based on a projection of your daily habits. With some apps, you can also select routine updates to ensure that your existing premium matches your current habits. For more information on usage-only auto insurance policies, try a newer company like Root Auto Insurance or a similar mobile-based provider.
How to Select the Best Option for Bad Credit Auto Insurance
Most drivers with bad credit are relieved to discover that there are multiple options for getting decent car insurance coverage. In addition to your auto insurance credit score, factors like location and type of auto insurance can greatly influence how much you pay. Therefore, there is no single answer on how much any one person should pay for car insurance. Instead, you should equip yourself with everything you have learned about the three types of bad credit car insurance and compare rates from providers to get the best quote for you.
For example, individuals with bad credit should understand that companies may calculate an insurance credit score that ranges 10 to 20 points on the low end. To get the best deal, a person with poor credit might request a quote from a no-credit-check insurer, a bad-credit friendly car insurance company, a major or national car insurance provider, and a few usage-only car insurance policies if possible. The quote that offers the lowest overall premium will generally be the best bet for a driver with poor credit.
Although some car insurance companies advertise plenty of bells and whistles in an attempt for new customers to close the deal, you should ensure that each of the plans you are comparing offer at least the same coverage limits and insurance deductibles. Since every state has different car insurance rules, it is imperative to make sure that any coverage limit at least meets the minimum auto insurance coverage requirement for driving legally in your state.
Whether you have bad credit or excellent credit, auto insurance quote comparison is essential for signing up for any car insurance company. With most car insurance comparison conducted online, there is no reason to skip this important step. Comparison shopping tends to take only five minutes to start and can provide a range of quotes for the three different types of car insurance companies. Factors that an auto insurance comparison tool may use to ensure an accurate quote include your location, vehicle type, age, accident record, estimated credit score, and type of insurance plan requested.
If you believe you have incidents or traffic violations on your driving record, it is even more important to compare quotes instead of settling for the automatically high premium. And remember, many states allow you to remove bad notations from your driving record after a period of seven years. Be sure to check your state's policy and remove any expired information to get the best deal on car insurance. You may also get a better deal on auto insurance by selecting the state minimum for car insurance coverage (instead of insisting on a fancy or broad-coverage plan).
How to Improve Your Credit Score and Potentially Lower Your Car Insurance Premiums
When shopping for auto insurance, your consumer credit score matters because it can factor into the calculation of your insurance credit score. Auto insurance companies then use this insurance credit score to tabulate your “risk” as a carrier and determine rates or premiums accordingly. Fortunately, you can choose from among the three types of auto insurance for drivers with bad credit if you need car insurance immediately. In addition, there are steps you can take to improve your credit score and get better rates when you apply for your next auto insurance policy or renewal.
First, try to establish a good credit history by paying your existing bills on time. Since payment history is one of the biggest factors in formulating your credit score, timely payment of your bills each month is a must. Second, try to pay down any outstanding credit card balances to produce a low-utilization score. Simply put, the utilization score is the ratio how much you owe on a credit card in comparison to the credit card's limit. Generally speaking, you want to maintain a utilization score of no greater than 30-percent. And since payment history plays such an important role in the credit score, credit bureaus like to have quite a few months to paint an accurate picture on your credit report. Therefore, the longer your credit history, the better it is for your score.
If you have any questions about your credit report, you are legally entitled to a free copy of your credit report from all three credit bureaus every year. You can request the yearly report by visiting the Annual Credit Report website. If you see any errors, challenge or dispute the mistake with the credit bureau is well as the company reporting the error. By making an effort to improve your credit score, you can have the leverage you need when selecting or renewing the best auto insurance policy for your needs.
General Questions about Car Insurance and Credit Scores
This section covers general questions you might have about car insurance and credit scores.
Why does credit affect car insurance?
Credit affects car insurance two ways. It can be used to determine how likely you are to file a claim. It can also be used to determine how likely you are to pay your bill.
What is a good credit score for auto insurance?
Any credit score above the “fair” range is a good score for auto insurance. While credit scores are part of your insurance quote, they aren’t as big of a deal as they are for something like a loan.
What is an auto insurance credit score?
An auto insurance score is a numerical representation of how likely you are to file an auto insurance claim.
Why do car insurance companies run credit checks?
Car insurance companies run credit checks because it helps them determine how to price your policy. Lower credit means a more expensive policy.
Do they pull credit score when requesting auto insurance?
In some cases, yes. However, this usually isn’t a “hard” inquiry, as you’re not requesting new credit or loans when you shop for insurance.
What role does credit score play in car insurance?
Depending on the state and the company, credit scores can play a fairly large size role in car insurance pricing and eligibility.
Does credit matter when buying car insurance?
In many places, yes. Car insurance companies can use your credit score to price your policy or determine eligibility in most states.
What would trigger car insurance to do a credit check?
Car insurance companies will do a credit check when you’re applying for new coverage or renewing previous coverage to help determine the price of your policy.
How is auto insurance credit score figured?
Auto insurance credit scores are figured by the information from your credit report. Companies use this information in their own way to produce a score.
How often do auto insurance companies check your credit?
It depends on your insurance company and state. Most companies won’t check more than once every 6 months when you renew your policy. Related: Why did my car insurance go up for no reason?
How Credit Scores Affect Car Insurance Prices
We’ll answer questions about how credit scores affect car insurance prices in this section.
How much does credit score affect car insurance?
Each company policy and state law are different. In some places your credit score will influence your policy’s price more than others.
How much will be the insurance for used car without credit?
That depends on lots of factors including your driving history, location, type of car, and so on. However to get cheap full coverage insurance quotes be sure to compare multiple companies.
How much can you pay for auto insurance with 750 credit score?
The price you pay for auto insurance is only partially influenced by your credit score. A bad driving record, dangerous car, or dangerous neighborhood will influence the cost of your policy. Be sure to check out the lease insurance requirements too if that's how you acquired your vehicle.
Why do you have to pay more car insurance because you have bad credit, is that legal?
It depends on the state you live in as to whether or not an insurance company can charge you more if you have bad credit. Having bad credit increases the price of your policy because it shows there’s a higher risk you won’t be able to pay your bill.
Why is my auto insurance expensive when I have a good driving record and good credit?
There are lots of reasons your insurance could be expensive. You should talk to your agent to find out what the cause of your insurance costs are.
How is it legal to give higher rates on car insurance based on low credit score?
It’s legal in many states to give someone with a lower credit score a higher insurance rate because a lower credit score shows that someone may have problems paying their bills on time.
Why has my son's credit rating affected my car insurance premiums?
You son’s credit rating is used as part of the formula for your insurance price. A lower rating can mean a higher likelihood you make a claim or miss a payment. Related: Why is my car insurance is too high?
How much for auto insurance no credit teenager?
The cost for insurance for a no-credit teenager is going to be quite high. However, the actual figure depends on lots of other factors, like your driving record, grades, car, and so on. You can compare car insurance for teens by getting multiple quotes and that may help you find the cheapest one.
How to get good auto insurance rates without good credit?
The best way to get good auto insurance rates without good credit is to take advantage of discount offers provided by your company. Things like good grades discounts or driver training discounts can go a long way toward lowering your insurance. Learn more about how to lower car insurance rates.
Why can car insurance companies give high rates to good drivers with bad credit?
Having a bad credit score means that you’re statistically more likely to miss payments on your bill. That means insurance companies charge more because of the increased risk of a loss to them. As you shop be sure compare car insurance rates by zip code too.
How much does a credit rating affect car insurance for 19-year-old male driver in NJ?
Credit ratings won’t be as much of a factor as other things for a 19-year-old male driver in NJ. Your driving record and car will be the biggest factors.
How can I get cheaper car insurance with bad credit?
You can get cheaper insurance with bad credit by taking advantage of discount offers like continuous insurance, safe driver, or driver training classes. There are also companies that specialize in auto insurance for bad drivers if your record is tarnished.
How Credit Scores Affect Car Insurance Eligibility
This section answers some of the most common questions about car insurance eligibility and credit scores.
How to get car insurance with bad credit?
You can get car insurance with bad credit by focusing on insurance companies that specialize in bad credit insurance. You can also try app-based or online insurance companies.
When getting a car insurance quote does it affect credit score?
Getting a car insurance quote shouldn’t affect your credit score. It will only impact your score if you miss a bill or the insurance company does a hard pull on your credit. So it's safe to even get multi car insurance quotes which is always recommended to find the best rate.
When shopping for car insurance, do they run your credit?
That depends on the company you’re shopping at and the state where you live. Sometimes companies pull credit, sometimes they don’t. If you're concerned about costs then you may want to bundle your insurances. This is most often times done with a house but you may be able to do this with a boat too. Related Article: Boat Loans for Bad Credit
How do car insurance companies know my credit score?
Car insurance companies know your credit score because they can request it from the credit reporting agencies. You usually give insurance companies permission to do this in the small print when you request a quote.
How does car insurance use your credit score?
Each car insurance company has different policies and every state has different laws about how insurance companies can use your credit score.
What is a bad credit score for buying car insurance?
Credit scores that are below 600 may have a hard time finding car insurance for a reasonable price. As you go car insurance shopping it may be beneficial to search out companies who don't use credit scores.
Credit Scores and Car Insurance in Specific States
We’ll talk about how the laws of different states relate to credit scores and car insurance in this section.
How many states use credit scores for auto insurance?
47 states use credit scores for auto insurance. Massachusetts, California, and Hawaii do not.
Which car insurance companies in Ohio don’t use credit scores?
There’s no list of car insurance companies in Ohio that don’t use credit scores. You’ll need to talk to individual insurance companies. You may want to look into pay per mile auto insurance companies as some people report saving money that way.
Why does Washington state allow auto insurance to use credit score?
Washington allows insurance companies to use credit scores because those scores indicate how likely you are to miss your bill.
States where is it illegal to determine auto insurance rates based on credit score?
There are three states that don’t allow insurance companies to use credit scores. Massachusetts, California, and Hawaii.
Car Insurance Companies and Credit Checks
This section answers your questions about car insurance companies and how they use credit checks.
Which car insurance companies do not check credit?
Almost every car insurance company checks credit expect in CA, MA, and HI.
Which car insurance goes by driving record and not credit?
Pretty much every car insurance company except for drivers in CA, MA, and HI will use credit scores as a factor in determining your rates. Don't fret if you don't have good driving history because there is car insurance for bad driving record.
How do you qualify for car insurance at security service credit union?
You’ll need to talk to Security Service Credit Union to see what their policy is for credit scores and car insurance.
What does my credit score have to be to get AAA auto insurance?
There’s no single number your credit score needs to be to get AAA insurance. In some states, AAA can’t even look at credit scores to determine insurance.
What does The General car insurance mean credit for insurance last five years?
Credit for insurance last five years means you’ve had insurance continuously for the previous 5 years with no lapses.
Other No Credit Check Car Insurance Questions
We’ll answer questions that don’t fit into our other sections here. Check here if you can’t find your question elsewhere.
How to remove items from car insurance credit report?
You’ll need to remove the item from your standard credit report to remove it from your car insurance credit report.
Does credit score go down when in car insurance grace period?
That depends on if and when your car insurance company reports to the credit monitoring agencies. If you haven’t paid your bill when they report, then it could cause your insurance to go down. Related: What is the auto insurance lapse grace period?
What is the credit given on auto owners insurance for a safety course?
The credit you get for driver’s safety training depends on the laws in your state, your specific car and driving record, and your company’s policies.
How to compare car insurance without credit checks?
The best way to compare car insurance is to use an online insurance comparison tool. These tools will give you a good idea on what your rates will be without checking your credit. To keep costs low look at a limited liability insurance car insurance option.
Car insurance release of credit what does that mean?
Release of credit means that the insurance company is applying an overpay from a previous bill to your current bill.
What is the meaning of p in auto insurance credit score?
P describes the class of insurance that your consumer profile falls under according to the metrics used by the insurance company.
How to raise your auto insurance credit score?
You can raise your auto insurance credit score by raising your credit score on the three bureau’s reports.
How much do unpaid auto insurance bills affect your credit?
That depends on lots of different factors. If your insurance company doesn’t report payments, then it doesn’t affect you at all.
How does insurance paying off car affect credit?
This won’t have a huge affect on your credit because car loans are installment debt. The amount of your installment debt doesn’t factor into your credit score.
What is "earned credit" car insurance?
There are several things that earned credit can be for car insurance. We’ll need more information before we can answer this question.
How auto insurance quote effect my credit score?
Your auto insurance quote shouldn’t affect your credit score, as most companies don’t do a hard pull when looking at your credit because you aren’t taking out a loan or line of credit.
Should you request an updated credit score when renewing your auto insurance policy?
It could be a good idea to request an updated credit score when renewing your insurance policy if you’ve paid off some credit card bills or taken other steps to boost your score.
How to see car insurance credit score?
Car insurance companies see your credit score by requesting it from one of the three major reporting agencies. You usually give them permission to do this in the small print you agree to when requesting a quote.