So you need car insurance – but you have a bad credit score. What’s the best solution? Can you still get good car insurance?
Today, we’re explaining everything you need to know about getting car insurance with a bad credit score.
People with Bad Credit Typically Pay More for Car Insurance
If you have bad credit, then you’ll typically pay more for car insurance. 90% of insurance companies will check your credit score prior to setting your car or home insurance rate.
Car insurance companies are legally allowed to use your credit history to set your insurance rate in all but three states – California, Hawaii, and Massachusetts. These three states have banned the practice.
Insurance companies aren’t punishing drivers with bad credit for no reason. Insurers have data that shows a connection between credit history and claim filing. That data shows that people who pay their bills on time will file fewer and less costly claims than those who pay their bills late. Not everyone with bad credit will file more claims – but data clearly shows a connection.
Insurance Companies Don’t See the Same Score as a Lender
Your insurance company doesn’t see the exact same credit score that a lender will. Banks and car lenders see a different credit score than insurance companies. In fact, insurance companies have a special credit score built specifically for them.
What’s the difference? Well, the credit score used by lenders predicts your ability to repay a loan. The credit score used by insurance companies predicts whether or not you’ll file claims.
That’s an important difference: you might have a bad credit score – but it’s not as bad as you think. That’s because the credit score you check is the one your lenders see, which isn’t the one your insurance company sees.
In general, however, bad credit is bad credit. Your car insurance company will look at slightly different indicators than a lender. However, the score will ultimately lead to a similar outcome.
Typical negatives on your credit score include overdue payments, collections, a high debt level, a large number of credit inquiries, and a short credit history.
Typical positives include things like a long credit history, minimal late payments and past-due accounts, and open credit accounts in good standing.
How Much Will A Bad Credit Score Increase My Rates?
Bad credit can have a severe impact on your car insurance rates. Our friends at Insurance.com commissioned a study comparing full-coverage rates for drivers who have bad credit, average credit, and good credit. Here’s what they found:
Excellent Credit: $563
Average Credit: $755
Bad Credit: $1277
Excellent Credit: $948
Average Credit: $1078
Bad Credit: $1318
As you can see, State Farm seems to put a higher emphasis on credit than Allstate. The only difference in plans was the driver’s credit score.
Credit scores might also affect the size of the down payment required by your insurance. It can also affect which payment options you’re offered. In general, you can expect lower down payments and more flexible payment options when you have good credit compared to when you have bad credit.
Will a Bankruptcy Raise Car Insurance Rates?
Bankruptcies will obviously have a very negative impact on your credit score. You would naturally assume that bankruptcy would raise car insurance rates.
This is only true if your bankruptcy occurred before your car insurance company checked your credit score. If your bankruptcy occurs in the middle of your car insurance term, then you might be okay. Some companies only check your credit once per year – so your inevitable rate increase may be a few months away.
In general, bankruptcy will affect your credit score for 7 to 10 years – so you can expect to pay significantly higher car insurance rates during that time.
Conclusion: How to Get Car Insurance with a Bad Credit Score
A bad credit score will rarely prevent you from getting car insurance. You’ll just need to pay more money for car insurance.
If you know you have bad credit, then there are things you can do to lower your car insurance costs. Check our list of ways car insurance is getting cheaper, for example.
At the very least, compare rates across car insurance companies. As mentioned above, some companies put a higher emphasis on credit scores than others. You might pay a ridiculous premium at Allstate, only to find a fairer price from State Farm.
Alternatively, if you have a really bad credit score and you don’t want to pay higher rates, you could move to Hawaii, California, or Massachusetts – the three states where insurers are not allowed to use credit scores to set rates.