Traffic tickets, accidents and the car you drive all affect your car insurance rates, but surprisingly to many, so can your credit.
Forbes Advisor’s analysis of car insurance rates in the 46 states that allow credit as a pricing factor reveals an average rate increase of 76% for those with poor credit. That translates into a hike of nearly $1,180 annually on average.
The use of credit in car insurance pricing is controversial for a number of reasons, chief among them is that credit has nothing to do with how you drive. However, auto insurance companies point to research that finds credit-based insurance scores are a good predictor of whether a driver will file claims.
Insurance companies cite various studies finding that drivers with bad credit are more likely to file claims, which means these drivers pose a higher risk to them and are potentially more expensive to insure. The more risk and cost you pose, the higher your car insurance rates.
How Does Poor Credit Affect Car Insurance?
The use of credit by auto insurance companies may seem like a stretch, but the insurance industry contends data supports it.
Studies, such as an often referred to Federal Trade Commission report, find a correlation between the number and cost of claims and a driver’s credit score. Following this logic, drivers with poor credit are viewed as higher risks, so pay increased auto insurance premiums—in most states.
On the other side of the issue are consumer advocacy groups, such as the Consumer Federation of America, which have asserted for years that using credit as an auto insurance rating factor is fundamentally discriminatory.
A few states agree that the use of a driver’s credit is not the best practice. California, Hawaii, Massachusetts and Michigan ban using credit to set auto insurance rates. There have been other state and even federal legislative discussions on prohibiting credit as a rating factor for car insurance, but none have yet progressed into laws.
Average Car Insurance Rate Increases for Poor Credit by State
Our analysis of the 46 states that permit credit-based auto insurance scores when determining auto insurance rates finds that the five states with the lowest average yearly increase for bad credit come in below 50%. New York has the smallest increase. The remaining states for lowest average annual increases for bad credit are:
- New York: 33%
- Wyoming: 39%
- Florida: 42%
- North Carolina: 44%
- Washington: 47%
The five states with the highest average annual increase all double the insurance cost for drivers with bad credit. Arkansas has the highest increase.The states with the highest average yearly increases are:
- Arkansas: 110%
- South Dakota: 109%
- Nebraska: 108%
- Wisconsin: 105%
- Utah: 104%
When looking at the increase by dollar amount, Wyoming has the lowest increase ($539), while Louisiana has the highest ($2,768).
Average Car Insurance Rate Increases for Bad Credit
How Long Can Bad Credit Affect My Car Insurance Rates?
Unlike traffic tickets that typically drop off your driving record and don’t affect rates after three to five years, a bad credit score can continually impact your car insurance rates.
As long as you have poor credit, your car insurance rates can be affected.
The best way to keep your credit from increasing your auto insurance premiums is to raise your score. Once you’ve successfully bumped your score higher, it’s a good time to compare car insurance quotes.
If you wait until your next renewal period to shop around, make sure to ask your current car insurance company to review your credit, as some only check for changes every few years if you are a long-time customer.
You should see your rates with your current insurance company improve as your credit score improves—but also take time to shop around. With a positive change in credit score, some other company may offer you cheaper rates and be a better overall fit for your needs.
How Does Poor Credit Compare to Tickets, Accidents or a DUI for Car Insurance Rates?
Having poor credit increases your rates more than if you have a speeding ticket or an accident and possibly more than a DUI, depending on where you live and your company’s rating system.
Our analysis found car insurance rates increase 76% on average annually for poor credit but car insurance rates for a speeding ticket rise by only 21%. The average rate increase after an at-fault accident is 41%.
A DUI is a serious offense with many ramifications, including an average auto insurance rate hike of 74%, which is still below the 76% increase we saw for drivers with poor credit.
However, in some states, a DUI hikes your premium significantly compared to the average spike for bad credit. We found this especially true in states that don’t allow credit used for rating purposes. These four states, which prohibit the use of credit, had higher than average rate hikes for DUIs:
- California: 154%
- Hawaii: 134%
- Massachusetts: 91%
- Michigan: 193%
In some states that allow credit as a rating factor, we found the rate hike for a DUI was much more than the credit rate increase. A few examples include:
- New York with a 68% rate increase for a DUI vs. 33% for poor credit
- North Carolina with a 319% increase for a DUI vs. 44% for poor credit
- Wyoming with a 56% increase for DUI vs. 39% for poor credit.
To get better rates in any state, keep a clean driving record and work towards a good or excellent credit score. You want to generate a low-risk profile for car insurance companies to offer you low prices.
How Can I Lower My Car Insurance Rates Even with Poor Credit?
Poor credit doesn’t define you—it’s just one aspect of the whole package car insurance companies look at. There are ways to lower your auto insurance rates.
To get better rates even with bad credit, you can:
- Ask for discounts. Don’t be shy with your agent or insurance company: Ask if there are any car insurance discounts you’re eligible for and not receiving. It may be as simple as going paperless or paying in full, or bundling your auto insurance with your home insurance, to get you discounts on your premium.
- Show you’re a good driver. If you want driving factors to count more toward what you pay for car insurance, try signing up for a usage-based car insurance program. The insurance company will monitor your driving behavior. If you score well, you can get a discount of up to 40% with some providers.
- Review your insurance policy. Your needs may have changed since you started your car insurance policy, so check it over. If you have an older car and don’t need collision and comprehensive coverages, you can take them off and save.
- Comparison shop. This is the most vital tip. You won’t get the cheapest car insurance rates without shopping from multiple companies. Each insurer weighs rating factors, such as credit, differently, so shop around at least once a year to ensure you’re getting the best price.
Car Insurance Rate Increases by Company for Poor Credit
Analyzing some of the top auto insurance companies’ rates, we discovered a wide range of premiums for drivers with poor credit. We found Geico to have the cheapest average annual rates of $1,750 and Auto-Owners the most expensive at $3,970. That’s a $2,220 difference.
With a 127% difference between cheapest and most expensive, the range of premiums underscores the importance of comparison shopping for car insurance.
Among those we analyzed, the company with the lowest percent increase for drivers with bad credit is Nationwide (35%). But Nationwide doesn’t have the overall lowest rate for drivers with bad credit—Geico beat them out by $155. That shows why it’s vital to look at the total premium when comparing costs, and not just the potential savings for discounts or how much rates go up for specific issues.
Which Car Insurance Companies Don’t Check Credit Reports?
Unless a car insurance company specifically states that it doesn’t consider credit when determining pricing, it’s best to assume they all do if your state allows your credit history as a rating factor.
There are currently four states—California, Hawaii, Massachusetts and Michigan—that don’t allow credit scores to help determine auto insurance rates. So, if you live in one of these states, all car insurance companies should skip reviewing credit history when calculating rates.
Some other states limit what insurance companies can do with credit scores.
For example, Maryland prohibits auto insurance companies from using credit history to determine if they’ll insure you, cancel your policy, renew your policy or increase your premium once a policy is in effect. However, laws allow a credit review when you first apply for a policy, and they determine what you’ll pay at the policy’s inception.
Maryland law also requires that insurance companies tell applicants if credit history affects rates and how much of your rate is dependent on your credit score.
Many state laws require auto insurance providers to disclose that your credit report may be reviewed and notify you if it results in an adverse action, such as higher rates.