Bad Credit Auto Insurance

If you have a car and you intend to drive it legally, you need car insurance. Although we might know people who drive without insurance, we should remember that driving is not a right, it’s a privilege and one that can be taken away if we don’t follow the rules to do it legally. However, getting the proper insurance at a rate you can afford can be a challenge for someone with less-than-perfect credit. A low credit score can mean more expensive premiums which can pose a challenge for lower-income drivers.

How Does My Bad Credit Affect My Car Insurance Premiums?

Insurance companies use credit scores to gauge whether you are a good insurance risk. In their minds, a person with a good credit score is more trustworthy and careful, which means they are less likely to take risks, cause accidents, and file expensive claims. So, if you have a credit score that is less than stellar, an insurance agency might not want to take the risk to cover you or, if they do, your premiums will be higher than those for customers with excellent credit. However, if you’re a resident of California, Hawaii, or Massachusetts, you’re in luck; insurance companies are prohibited from using credit scores to help determine insurance premiums in those states.

Why Use My Credit Score?

Insurance companies feel that using credit scores as a way to measure risk makes sense for several reasons. First, people with bad credit are often on the lower end of the economic scale and therefore their vehicles might not be as road-worthy (bald tires, bad brakes, etc.) as someone with the ability to keep a car in better condition. There’s also the belief that people with bad credit don’t pay their bills. Although non-payment of bills could be a reason for a low credit score, it’s far from the only one. The amount of debt you have in comparison to credit limits can help or harm your score. For example, if you have three credit cards and all three are maxed, that is a sign of someone who uses too much credit on a regular basis. But, if you have those same three credit cards and only one is carrying a balance, that’s a sign of responsible credit use.

What Affects My Credit Score?

Your credit score is comprised of various aspects of your financial and personal life.

  • Payment History

    If you pay your bills on time and don’t default on financial obligations, this will appear as a positive and raise your credit score. But if you are constantly late paying your credit card bill or even stop paying one altogether, this will have a negative impact on your score.
  • Amount of Credit

    It is possible to not have enough or to have too much credit. Not having enough credit means the scoring agencies can’t get a good idea of your payment habits or how you handle long-term debt, two major factors in determining a credit score. Having too much credit could make you look reckless, especially if you have balances on all of your accounts. A couple of credit cards with decent credit limits, a car payment, a mortgage, and student loans is the typical person’s credit report.
  • Amount of Debt:

    Having more or less than the amount described above can have a negative impact on your credit score. Provided all payments are current, it should be a credit score booster.
  • Too many credit inquiries

    Applying for credit multiple times for different reasons can negatively impact your credit score. There are two types of credit inquiries, hard and soft. A hard inquiry will impact your credit score. A soft inquiry will not. It’s important to note that an insurance company’s inquiry is soft, so it doesn’t impact your credit score to get insurance quotes.

The important takeaway is that any financial transaction you engage in that is not in cash will eventually make its way onto your credit report.

Insurance Scores are Different Than Credit Scores

A credit score is used by financial institutions and other organizations to gauge your overall creditworthiness when determining whether or not to extend you credit. Think mortgage lenders, auto lenders, and credit card companies. Insurance agencies use a different score to help determine how big a risk you might be in regard to filing a claim. They look at your driving record and check for previous accidents or claims. They also look at your consumer credit score but that is one of several factors taken into consideration when determining whether to offer insurance coverage and, if so, how much of a premium to charge.

Other Factors That Influence Your Premiums

Your creditworthiness and driving history are just some of the factors that influence your insurance premiums. There are many other factors that go into how much you’ll pay for insurance.

  • Full coverage or liability?

    If you have an auto loan, full coverage is a requirement and it costs more than just liability insurance, which covers damage you cause in an accident that is deemed your fault.
  • Where do you live?

    Insurance in a city typically costs more than in a more rural area. If you park in a garage versus on the street, that will also make a difference in premium payments, because a garage is considered a more secure parking option. Also, some states have higher overall insurance premiums than other states. Iowa is one of the cheapest states for auto insurance, while New Jersey is one of the most expensive.
  • How old are you?

    Are you male or female? For the most part, the younger you are, the more your insurance is going to cost. Also, males are typically more expensive to insure than females, though rates lower as both genders age.
  • What is your driving experience and history?

    Where and how far do you drive? Someone who has been driving for 10 years, has no claims and drives less than 20,000 miles a year is less of a risk than a new driver with speeding tickets. The length of time you’ve been driving, whether you have tickets or other moving violations on your driving record, and how much you drive in a year all factor into your premium.

Other factors include your marital status, your profession, your level of education, the kind of vehicle you drive, whether you own it or are buying or leasing, and any other discounts you might qualify for. All of these things play a role in how much you’ll pay for coverage.

How to Find Car Insurance with Bad Credit

The process of attaining coverage when you have bad credit is the same as getting it with good credit. The difference is, you might have to shop around more and ask more specific questions.

Get Some Quotes :

Call around to different insurance companies and apply for insurance. There are some sites that will let you provide your information and return several different company’s quotes at once, such as and, but calling small, local agents can’t hurt either.

Ask About Discounts :

(most insurers won’t automatically sign you up for discounts) If you get a quote that’s close to what you can afford or are willing to pay, ask about different discounts that might apply. Some insurance companies automatically match you with discounts while others do not, so it’s always a good idea to ask. Discounts can apply based on your profession, the club or organizations you belong to, where you went to school, or where you work.

Think Long Term :

(Drive safe, make as few claims as possible, etc.) If you already have a clean driving record, keep it that way. If you have a history of driving issues, do what you can to prevent getting more. Obey speed limits, don’t drive while distracted, pay attention, and drive defensively. Taking a defensive driving course or signing up for driving lessons is another way of making what might be a high premium a little lower.

No-Credit Check Auto Insurance

Some insurance companies will offer auto insurance without a credit check. However, the premiums are going to be much higher because the company is going to assume you have issues on either your driving record or credit history. That makes you a greater risk to insure. After a year or so, you can request a review of your records and premium to see if you qualify for a premium adjustment.

Steps to Take to Improve Your Credit Score

If you’re still finding premiums are more expensive than you can afford, you might want to work on improving your credit score. The first thing you’ll want to do is get a copy of your credit report so that you can see what’s on it. Once you have a copy of the report, you can pay charge offs and old collection debt that’s sitting on your credit report. You’ll also want to continue to pay your current debts on time. If your problem is a lack of credit, consider getting a credit card or a department store credit card. If you see anything suspicious, contact the credit reporting agency and the collection agency that holds the debt and challenge it.

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