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UPDATED: Mar 13, 2020
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Auto insurance premiums are based on risk and one of the variables car insurance companies use to measure risk is an applicant’s credit score. Although on the surface your credit score really has nothing to do with how well you drive a car statistics do show that people with bad credit are more likely to file a claim and this means a larger risk to a car insurance company.
Can I get car insurance with bad credit?
Of course but this will depend on your overall application. While some car insurance companies will deny coverage to people with bad credit others simply use it as one variable which can be compensated for with lower risk variables such as a good driving record. Auto insurance for people with bad credit can be obtained but it usually takes a little more work.
How much is car insurance with bad credit?
This all depends on your complete profile. Some drivers with bad credit experience car insurance rates 2 or 3 times premiums advertised while others see no increase in car insurance rates. If you are worried about your credit score then before shopping for auto insurance always try to get a copy of your credit report and score. Very often credit reports have numerous errors which you can dispute or sometimes your credit score is really not as bad as you think. A bad credit score is generally under 620 but this depends on who is pulling your report and how they value credit scores in the risk formula.
Does every car insurance company use Credit Scores?
No. There are many car insurance companies who specialize in no credit check car insurance however no matter how bad you believe your credit score is never contact these companies first. Being late on a couple payments or maxed out on a credit card is not as bad as many people think especially when it comes to auto insurance. Although you may get denied for an unsecured credit card auto insurance companies are much more lenient in how they evaluate credit as part of an application for insurance.
There are many states who have banned car insurance companies form using credit scores such as California. While most states allow the use of credit scores its important to understand your state laws before giving out your social security number.
What is a Credit Score?
Car insurance companies like credit scores because they provide a measure of your past financial responsibility. Although credit reports can be very confusing for some people essentially the credit score is a numerical value attached to how you pay your bills and manage credit obligations. Why credit scores are important to car insurance companies is that reports show drivers with bad credit are more likely to file a car insurance claim. There is some logic around this as people with bad credit often need money and have less means of available credit than people with good credit. In the event of an accident its logical to assume drivers with less means will file a claim while drivers with greater means may avoid filing smaller claims since they don’t want to be possibly exposed to higher future car insurance rates.
While a bad credit score may prevent you from getting the best rates many top car insurance companies still provide very affordable options for people with poor credit.
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