Credit Score Impact On Auto Insurance

Yes, car insurance companies can deny you coverage if you have poor credit. Poor credit can increase your car insurance rate by an average of 77% and insurance companies tend to see those with poor credit as more likely to file a claim. In addition, your credit may affect the size of the down payment an insurance company requires and which payment options you are offered.

How credit scores affect auto insurance rates

In most states, your credit score can affect your auto insurance rates. While a poor credit score may not affect your driving ability, insurance companies say that people with bad credit are more likely to file a claim. As a result, you will likely pay more for auto insurance if you have a low credit score.

How Credit Scores Affect Rates

The difference between auto insurance rates for people with good credit and those with poor credit is about 18% nationwide. Poor credit can increase your auto insurance rate by an average of 71%, and in some cases, it can be as high as 137% more. The exact increase in your rate will depend on factors such as your driving record, where you live, the insurance company, and state insurance laws.

Improving Your Credit Score

Improving your credit score can help you get better auto insurance rates. Some ways to improve your credit score include paying off loans and credit cards, keeping your credit card balances low, and not opening multiple credit card accounts in a short period. Checking your credit report for accuracy is also important.

Shopping for Auto Insurance

If you have poor credit, it is essential to shop around and compare quotes from multiple insurance providers. Different companies weigh rating factors differently, so you may find that some insurers are more competitive for people with poor credit. Additionally, look for insurance companies that offer a variety of discounts, such as good driver discounts, accident-free discounts, and multi-policy discounts.

High-Risk Insurance

If you are unable to find affordable auto insurance with standard insurance companies, you may need to turn to high-risk or non-standard insurance providers. These companies specialize in covering high-risk drivers and may be more likely to offer you coverage. However, high-risk insurance will likely be more expensive than a policy with a standard insurance company.

Why do insurance companies check credit scores?

Insurance companies check credit scores to assess the risk of offering you a policy. A credit-based insurance score is used to predict the likelihood of you filing insurance claims that cost the company more than it collects in premiums.

In most states, it is legal for insurance companies to use credit history as a rating factor, and it can significantly impact the rates offered. A low credit score doesn't necessarily mean you're irresponsible, but insurance companies will view you as a higher risk. They may then deny your application or charge you higher premiums.

The credit score insurance companies use is different from the one used by lenders and creditors. It is based on specific aspects of your credit history and is designed to predict the likelihood of you filing insurance claims.

In addition to your credit score, insurance companies might also check your credit report to review your payment history and credit utilization ratio (how much you owe vs. your credit limit). This helps them assess the risk of offering you a policy.

What to do if denied auto insurance due to poor credit

Yes, auto insurance companies can deny you coverage if you have poor credit. Poor credit can increase your car insurance rate by an average of 77% compared to someone with good credit. This is because insurance companies see a correlation between poor credit and a higher risk of filing a claim.

If you have been denied auto insurance due to poor credit, there are several steps you can take:

• Shop around for quotes from different insurance providers: Compare car insurance quotes from multiple companies, as rates can vary significantly. Some recommended companies for drivers with poor credit include Geico, Nationwide, State Farm, Allstate, and The General.
• Improve your credit score: Pay your bills and loans on time, keep credit card balances low, and limit hard credit checks to improve your credit score over time.
• Consider a high-risk insurance company: If standard insurance companies deny you coverage, consider turning to a high-risk or non-standard car insurance provider. These companies have different underwriting guidelines and may be more likely to offer you coverage, although the rates may be higher.
• Get added to a family member's policy: If you live with a family member, you may be able to get added to their policy. However, this option may not be available if you are not living with them or if you don't meet the insurance company's guidelines.
• Contact your state's assigned risk pool: If you have been denied coverage by multiple carriers, you may be eligible for coverage through your state's assigned risk pool. Each state has different criteria, but you can usually work through an agent at one of the companies that denied you coverage to access this option.
• Improve your driving record: Maintaining a clean driving record and avoiding accidents and violations may help you qualify for coverage in the future. Consider enrolling in a defensive driving course to demonstrate your commitment to safe driving.

How to improve your credit score

Yes, auto insurance companies can deny you coverage if you have poor credit. Improving your credit score can help you get approved for car insurance and lower your insurance rates. Here are some tips to improve your credit score:

• Make timely payments: Paying your bills on time is crucial for improving your credit score. Late payments can stay on your credit report for up to seven years and negatively impact your score. Set up autopay or calendar reminders to ensure you never miss a payment deadline.
• Pay down revolving account balances: Keep your credit card balances low and aim for a credit utilization rate of below 30%. Paying off high credit card balances should be a priority.
• Don't close your oldest account: The length of your credit history matters, so avoid closing your oldest credit accounts. Consider using your oldest credit card occasionally or putting a small recurring bill on it to keep it active.
• Diversify your credit: Having different types of credit, such as credit cards, auto loans, or mortgages, can improve your credit mix, which accounts for 10% of your FICO® Score.
• Limit new credit applications: Every time you apply for new credit, a hard inquiry is made on your credit report, which can lower your score. Only apply for new credit when necessary and consider prequalification when available.
• Dispute inaccurate information: Review your credit reports for any inaccuracies or fraudulent activity and dispute any errors with the credit bureaus.
• Become an authorized user: If you're new to credit, consider asking a parent or loved one to add you as an authorized user on their credit card. Ensure the account has a positive payment history and a low credit utilization rate.
• Improve your credit utilization: Keep your credit utilization below 30%, with lower rates being better. You can achieve this by increasing your credit limit or paying off your balances.
• Get credit for rent and utility payments: Services like Experian Boost can help you get credit for on-time rent and utility payments, which can positively impact your credit score.
• Add to your credit mix: Consider adding a different type of credit account, such as a loan or a new credit card, to improve your credit mix and reduce your overall credit utilization.

States where credit scores don't affect auto insurance rates

Yes, auto insurance companies can deny you coverage if you have poor credit. However, there are a few states that prohibit or limit the use of credit scores in determining auto insurance rates. These states include:

• California
• Hawaii
• Massachusetts
• Michigan

In these states, your credit score will not impact your auto insurance rates, and insurance companies cannot use your credit history to deny you coverage or increase your premiums.

Other states, such as Maryland, Nevada, Oregon, and Utah, have also implemented restrictions on how insurance companies can use credit scores when offering or renewing policies. While these states may not completely prohibit the use of credit scores, they have put in place regulations to protect consumers from being unfairly impacted by their credit history.

It is important to note that even within these states, insurance companies may still consider other factors, such as your driving record, age, and vehicle type, when determining your eligibility for coverage and calculating your premiums.

Frequently asked questions