How Much Do Car Insurance Rates Go Up Because Of Poor Credit?
Traffic tickets, accidents, and the car you drive all have an impact on your car insurance rates, but many people are surprised to learn that your credit score can as well.
According to CompareInsurance analysis of car insurance rates in the 46 states that allow credit as a pricing factor, those with poor credit face a 76 percent increase in rates. This equates to an annual increase of nearly $1,180 on average.
The use of credit in car insurance pricing is contentious for a variety of reasons, the most important of which is that credit has nothing to do with how you drive. Auto insurance companies, on the other hand, point to research that shows credit-based insurance scores are a good predictor of whether a driver will file claims.
Insurance companies cite various studies indicating that drivers with poor credit are more likely to file claims, posing a higher risk to them and potentially costing more to insure. The higher your car insurance rates, the greater the risk and cost you pose.
How Does Poor Credit Affect Car Insurance?
The use of credit by auto insurance companies may appear to be a stretch, but data supports it, according to the insurance industry.
According to studies, such as a frequently cited Federal Trade Commission report, there is a link between the number and cost of claims and a driver's credit score. According to this logic, drivers with poor credit are viewed as higher risks and, as a result, pay higher auto insurance premiums in most states.
Consumer advocacy organizations, such as the Consumer Federation of America, have long claimed that using credit as a rating factor for auto insurance is fundamentally discriminatory.
A few states agree that using a driver's credit is not a good idea.
Credit is not allowed to be used to set auto insurance rates in California, Hawaii, Massachusetts, or Michigan. There have been other state and even federal legislative discussions about prohibiting credit as a rating factor for auto insurance, but none have resulted in legislation.
Average Car Insurance Rate Increases for Poor Credit by State
Our analysis of the 46 states that allow credit-based auto insurance scores to be used to determine car insurance rates reveals that the five states with the lowest average yearly increase for bad credit are all under 50%. The smallest increase is in New York. The following states have the lowest average annual increases for bad credit:
- New York: 33%
- Wyoming: 39%
- Florida: 42%
- North Carolina: 44%
- Washington: 47%
The five states with the highest average annual increase all double the cost of insurance for bad-credit drivers. Arkansas has experienced the greatest increase. The following states have the highest average yearly increases:
- Arkansas: 110%
- South Dakota: 109%
- Nebraska: 108%
- Wisconsin: 105%
- Utah: 104%
When measured in dollars, Wyoming has the smallest increase ($539) and Louisiana has the largest ($2,768).
Average Car Insurance Rate Increases for Bad Credit
State | Average insurance rate % increase due to poor credit | Average insurance rate $ increase due to poor credit |
75% | $1,249 | |
58% | $794 | |
81% | $1,384 | |
110% | $1,759 | |
Colorado | 76% | $1,345 |
Connecticut | 72% | $1,053 |
Delaware | 83% | $1,370 |
Florida | 42% | $1,227 |
Georgia | 62% | $1,022 |
Idaho | 86% | $1,038 |
Illinois | 88% | $1,187 |
Indiana | 73% | $910 |
Iowa | 83% | $1,000 |
Kansas | 75% | $1,228 |
Kentucky | 73% | $1,609 |
Louisiana | 97% | $2,768 |
Maine | 95% | $958 |
Maryland | 72% | $1,149 |
Minnesota | 90% | $1,577 |
Mississippi | 84% | $1,347 |
Missouri | 61% | $1,113 |
Montana | 66% | $1,063 |
Nebraska | 108% | $1,887 |
Nevada | 55% | $1,143 |
New Hampshire | 86% | $947 |
New Jersey | 82% | $1,387 |
New Mexico | 54% | $810 |
New York | 33% | $646 |
North Carolina | 44% | $560 |
North Dakota | 85% | $1,176 |
Ohio | 78% | $901 |
Oklahoma | 66% | $1,182 |
Oregon | 73% | $1,035 |
Pennsylvania | 56% | $807 |
Rhode Island | 96% | $1,844 |
South Carolina | 83% | $1,349 |
South Dakota | 109% | $1,851 |
Tennessee | 97% | $1,160 |
Texas | 59% | $784 |
Utah | 104% | $1,527 |
Vermont | 86% | $909 |
Virginia | 75% | $905 |
Washington | 47% | $542 |
West Virginia | 73% | $933 |
Wisconsin | 105% | $1,267 |
Wyoming | 39% | $539 |
How Long Can Bad Credit Affect My Car Insurance Rates?
Unlike traffic tickets, which typically fall off your driving record and have no effect on rates after three to five years, a poor credit score can have a long-term impact on your car insurance rates.
Your car insurance rates may be affected if you have bad credit.
Raising your credit score is the best way to keep your auto insurance premiums from rising. When you've successfully raised your credit score, it's 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've been a customer for a long time.
As your credit score improves, your rates with your current insurance company should improve as well—but take the time to shop around. If your credit score improves, another company may offer you lower 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?
Poor credit raises your rates more than a speeding ticket or an accident, and possibly more than a DUI, depending on where you live and the rating system used by your company.
According to our research, car insurance rates for people with bad credit rise by 76 percent on average each year, while rates for people with a speeding ticket rise by only 21 percent. The average rate increase following an at-fault accident is 41%.
A DUI is a serious offence with many consequences, including an average 74 percent increase in auto insurance rates, which is still less than the 76 percent increase we saw for drivers with poor credit.
However, in some states, a DUI significantly raises your premium compared to the average increase for bad credit. This was especially true in states where credit could not be used for rating purposes. These four states, which forbid the use of credit, saw higher-than-average increases in DUI rates:
- California: 154%
- Hawaii: 134%
- Massachusetts: 91%
- Michigan: 193%
In some states where credit is used as a rating factor, we discovered that the rate increase for a DUI was much greater than the credit rate increase. Here are a few examples:
- New York has a 68 percent rate increase for a DUI versus a 33 percent rate increase for poor credit.
- North Carolina has a 319 percent increase for a DUI versus a 44 percent increase for poor credit.
- Wyoming has a 56 percent increase for DUI compared to a 39 percent increase for poor credit.
Maintain a clean driving record and work toward a good or excellent credit score to get better rates in any state. You want to create a low-risk profile so that car insurance companies will offer you low-cost coverage.
How Can I Lower My Car Insurance Rates Even with Poor Credit?
Poor credit does not define you; it is only one component of the overall package that car insurance companies consider. There are ways to reduce the cost of your auto insurance.
You can get better rates even if you have bad credit by doing the following:
- Ask for discounts. Don't be afraid to ask your agent or insurance company if there are any car insurance discounts that you are eligible for but aren't receiving. It could be as simple as going paperless, paying in full, or bundling your auto insurance with your home insurance to receive premium discounts.
- Demonstrate your driving skills. Sign up for a usage-based car insurance program if you want driving factors to count more toward what you pay for car insurance. Your driving habits will be monitored by your insurance company. Some providers will give you a discount of up to 40% if you score well.
- Review your insurance policy. Check your car insurance policy to see if your needs have changed since you first purchased it. If you have an older vehicle and don't require collision or comprehensive coverage, you can remove them and save money.
- Comparison shop. This is the most important tip. You won't find the cheapest car insurance rates unless you shop around. Each insurer weighs rating factors differently, such as credit, so shop around at least once a year to ensure you're getting the best deal.
Car Insurance Rate Increases by Company for Poor Credit
We discovered a wide range of premiums for drivers with poor credit after analyzing the rates of some of the top auto insurance companies. Geico had the lowest average annual rates of $1,750, while Auto-Owners had the highest at $3,970. That's a difference of $2,220.
With a 127 percent difference between the cheapest and most expensive premiums, the range of premiums emphasizes the importance of car insurance comparison shopping.
Nationwide is the company with the lowest percent increase for drivers with bad credit among those we looked at (35 percent ). However, Nationwide does not have the overall lowest rate for bad credit drivers—Geico beat them out by $155. That demonstrates why, when comparing costs, it's critical to consider the total premium, not just the potential savings from discounts or how much rates rise for specific issues.
Company | Average annual rates with good credit | Average annual rates with poor credit | Average annual rate increase for poor credit |
Geico | $1,221 | $1,750 | 43% |
USAA | $1,111 | $1,865 | 68% |
Nationwide | $1,411 | $1,905 | 35% |
Travelers | $1,499 | $2,487 | 66% |
Erie | $1,182 | $2,694 | 128% |
Progressive | $1,825 | $3,052 | 67% |
Farmers | $2,073 | $3,409 | 64% |
Allstate | $2,315 | $3,617 | 56% |
State Farm | $1,403 | $3,849 | 174% |
Auto-Owners | $1,520 | $3,970 | 161% |
Which Car Insurance Companies Don’t Check Credit Reports?
Unless a car insurance company expressly states that it does not consider credit when determining pricing, it is best to assume that they all do if your state allows your credit history to be used as a rating factor.
Credit scores are currently not used to determine auto insurance rates in four states: California, Hawaii, Massachusetts, and Michigan. As a result, if you live in one of these states, all car insurance companies should disregard your credit history when calculating rates.
Other states place restrictions on what insurance companies can do with credit scores.
For example, in Maryland, auto insurance companies are not permitted to use your credit history to determine whether they will insure you, cancel your policy, renew your policy, or increase your premium once your policy is in effect. However, laws allow for a credit check when you first apply for a policy, and they determine how much you'll pay at the start of the policy.
Maryland law also requires insurance companies to inform applicants if their credit history affects their rates and how much of their rate is influenced by their credit score.
Many state laws require auto insurance providers to disclose that your credit report may be reviewed and to notify you if an adverse action, such as higher rates, is taken.