You can get car insurance with bad credit, but at a much higher cost than if your credit was good. On average, people with bad credit pay as much as 50% more for their car insurance than other drivers with a good credit report.
If you have bad credit, then you need to work on raising your credit score. If you don’t yet need car insurance and you know your credit is undesirable, then you can work toward boosting your score before applying for car insurance. However, if you are in the position where you have to get car insurance now, the only thing you can really do is shop around for a better rate and reapply for insurance when your credit starts to get better.
Keep reading to learn all about credit scores and auto insurance rates, bad credit car insurance policies, and more. Also, be sure to enter your zip above to find and compare bad credit auto insurance quotes right along with good credit auto insurance quotes so that you can find the cheapest car insurance. Just enter your zip to start with a free car insurance comparison online!
Understanding Credit Reports
Credit reports can be lengthy and overwhelming, but you need to familiarize yourself with them for a variety of reasons. Your credit report is used for so many determining factors, from credit card approval to the rate you receive on your car insurance. Not every state allows insurance companies to calculate your car insurance premium based on your credit score, but most of them do. So it is in your best interest to understand your credit report and improve upon it as much as possible.
Your credit report has personal data on it that includes all of the addresses you have lived at, all of the credit cards you have opened, any secured loans, and any credit reporting that was done by financial institutions and utility companies. The information related to your credit reporting is used in conjunction with your current debt situation to determine your credit score. The credit score is usually the figure that most people refer to when deciding your credit risk and whether to approve you for something or not. It is also the number that car insurance companies consider when deciding on your car insurance rate.
A credit score ranges from 300 to 900, with the higher the score meaning the better credit you have. An excellent score starts at 800 giving you perfect credit. A number that starts with 720 earns you a status of great credit and 680 or higher gives you good credit. However, once you start getting in the 620 to 680 range, you are looking at an okay credit score; not bad but not really good either. Anything below 620 starts putting you in the not good category, with a credit score of 500 to 579 being very low and flat out bad. If your score goes below 500 your credit is in serious trouble.
Why Bad Credit Impacts your Car Insurance
While it makes sense that a bad credit score could cause a creditor to deny you credit, it may not seem very sensible for it to impact your car insurance rate. However, it does and with that being said, you need to work on raising your credit score and reducing your car insurance rate.
Right or wrong, many businesses review your credit score as a risk factor for your personality. Employers do it all the time, especially jobs that involve cash handling such as a dealer at a casino or a cashier at a retail store. Unfortunately, if you have a low credit score you are considered to be a high risk based on the sheer psychology that if your credit is low you must be in financial straits, and “desperate people do desperate things.” Even if it doesn’t seem fair, at least with certain types of employment, there is some logic to it.
Now with car insurance, it may be difficult to see the correlation between your credit score and your car insurance premium. However, studies show that people with lower credit scores are more likely to be less responsible and therefore are a higher risk for filing claims. That is why some insurance companies factor in your credit score when determining your car insurance rate.
How to Raise your Credit Score to Get Better Car Insurance Rates
If you are looking at getting car insurance down the road, then there are certain steps you can take to raise your credit score to get better car insurance rates. If you currently have car insurance and your credit score is not great, then you should also take the same steps to boost your credit score now. Since car insurance usually gets renewed every six months to a year, you have a chance of lowering your car insurance rate at renewal time if your credit score goes up in the meantime.
The first thing to do is to get a copy of your credit report and review it for accuracy. Report any errors to the credit reporting bureau immediately. Second, check for any signs of identity theft that could be negatively affecting your credit. Next, look over current credit card debts and devise a pay down plan. Try to make extra payments on at least one card every month, preferably choosing the one with the highest balance and the lowest credit limit. The faster you can pay down your balances and increase your limits, the quicker you can raise your credit score.
Having bad credit will not keep you from getting car insurance. It will, however, cost you more money in insurance premiums than if your credit score is good. If you have bad credit, work toward raising your credit score and in the meantime find lower rates by shopping around. You can get free no obligation quotes right now by simply following the car insurance rate tool prompt. No matter what your credit looks like just enter your zip to start!
