Bad Credit Scores and Car Insurance

You're sure to notice an increase in rates for car insurance with bad credit. Drivers with poor credit history pay $165.39/mo more for coverage than drivers with good credit.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 30, 2021

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Here's what you need to know...

  • Your credit is likely to affect the cost of your car insurance
  • Insurance companies receive information about your credit based on how you make account payments
  • Your driving history is also a consideration for insurance companies, so drive safely to avoid hikes in insurance rates

The influence that credit ratings have on car insurance rates has become a hot-button topic in recent years.

It is said that around 92 percent of car insurance companies use your credit ratings to determine your rates. You could be classified as a high-risk driver just based on credit ratings alone!

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When you calculate the amount of money you spend each month on life, health, and car or truck insurance, you may realize that you are spending more than you ever thought possible.

Most American consumers are likely to find that they spend more on insurance than on many other basic expenses.

This expense is enough to make the average person angry.

How Car Insurance Companies Determine Your Rates

Unfortunately, when you fall behind on bill payments, it is reflected in your credit rating.

This influence on your credit rating has a domino effect on almost everything in your life. Your insurance carrier takes several things into consideration when determining your insurance rate, and your credit sits at the top of the list, along with your driving record.

Other factors include:

  • Geographical location
  • Gender
  • Make and model of your vehicle
  • Age
  • Features of your vehicle

These factors are calculated using an insurance table. If your credit score and driving record have blemishes, you may even have to go with a high-risk carrier if you are not already covered by a previous policy.

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Car Insurance, Credit Ratings, and Discrimination

Your credit report is managed by three credit reporting agencies: Equifax, Experian, and Transunion. They contain your personal information for identification, entries of public record, account histories, and inquiries.

Your public record entries are those that were posted by a state or federal entity such as a court, or government institution like Sallie Mae who finances student loans.

When you open a bank or credit card account, it is reported to the credit bureaus mentioned. They report when you are late with your payments and when your account status changes.

Your rating is based on how you make your account payments and other matters of public record.

Insurance officers such as the CEOs, managers, and underwriters perform a good job declaring that discrimination never plays a role in determining rates. They maintain that their rates are strictly based on the determination factors.

Studies eventually establish patterns and demographics of groups of drivers; these studies help insurers determine risk factors, and these risk factors determine rates.

So if you are at a certain income level, socioeconomic status, age, gender, or race, your carrier has the ability to make a prediction about your driving habits and even your ability to pay your premiums or the likelihood that you will eventually file a claim.

Lowering Your Car Insurance Rates

You can improve your car insurance premiums using several money-saving tips, such as:

  • Paying your premiums in advance
  • Claiming your club and organization discounts
  • Increasing your deductible
  • Combining your home and car insurance
  • Purchasing multiple policies

There are several more ways to save, and your agent should be able to share them with you. Your AAA or AARP membership is worth a 10 percent savings alone.

When you consider other discounts you may be eligible for another 10 to 15 percent savings.

Car Insurance Companies That Do Not Use Credit Scores

There are several companies who do not consider your credit rating when offering you a quote. Allstate, who is one of the top three major carriers, is an example.

Insurance companies who offer insurance by the mile are another example.

There are ways to get car insurance coverage without having your credit score serve as one of the factors in determining your rate.

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How to Save on Car Insurance with Bad Credit

Although credit affects auto insurance rates, it is not the only consideration.

If you have a good driving record or other compensating factors, you may still be able to get affordable coverage. Also, if you implement the above-mentioned tips, you may be able to keep your premiums at a reasonable rate.

Enter your zip code below to access rates from multiple car insurance companies today!

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Enter your ZIP code below to view companies that have cheap car insurance rates.

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