Bad Credit? Here's How To Get Auto Insurance

Getting auto insurance with bad credit can be challenging and expensive. Bad credit is considered a risk factor for frequent insurance claims, and drivers with bad credit are often charged higher rates. However, there are ways to obtain auto insurance and potentially reduce costs. Some insurance companies, such as GEICO, Nationwide, and USAA, offer cheaper rates for drivers with poor credit. Comparing quotes from multiple companies and taking advantage of discounts can also help lower insurance costs. Additionally, improving your credit score over time by making timely payments, maintaining low credit card balances, and establishing a positive credit history can positively impact your insurance rates.

Compare quotes from different companies

Comparing quotes from different companies is a great way to find the best deal on auto insurance, especially if you have a poor credit score. Each insurance company weighs credit history differently, so it's important to shop around and get multiple quotes to find the most affordable coverage for your needs. Here are some tips to help you compare quotes from different companies:

• Determine your needs: Before comparing quotes, it's important to understand your insurance needs. Consider the type of coverage you require (liability, collision, comprehensive, etc.), the amount of coverage you need, and any specific add-ons or discounts you may be eligible for. This will help you compare similar coverage options across different companies.
• Get quotes from multiple insurers: Don't just settle for the first quote you receive. Reach out to several insurance companies, either directly or through an insurance broker, to get quotes for the coverage you need. Make sure to provide accurate information about yourself, your driving history, the vehicle you want to insure, and any other relevant details.
• Compare rates and coverage options: When comparing quotes, look beyond just the price. Consider the coverage limits, deductibles, and any additional benefits or services offered by each company. Pay attention to factors such as customer service, claims handling processes, and financial stability of the insurer as well.
• Look for discounts: Many insurance companies offer a variety of discounts that can help lower your premium. These may include discounts for bundling multiple policies, having safety features in your car, being a good student, or having a clean driving record. Ask about any available discounts and see how they can impact your overall quote.
• Read the fine print: When comparing quotes, be sure to read the terms and conditions carefully. Pay attention to exclusions, limitations, and any other restrictions that may apply. Understanding the details of each quote will help you make an informed decision.
• Use online tools: There are many online tools and websites available that allow you to compare car insurance quotes from multiple companies at once. These tools can save you time and provide you with a side-by-side comparison of rates and coverage options.
• Consider usage-based insurance: If you have a good driving record, consider usage-based insurance programs that track your driving habits and offer discounts for safe driving. These programs may help offset higher rates due to poor credit.
• Don't sacrifice quality for price: While price is an important factor, don't choose a company solely based on the lowest quote. Ensure that the insurer you select offers the coverage you need, has a good reputation, and provides reliable customer service.

By following these tips and comparing quotes from different companies, you can find the most suitable auto insurance policy that fits your budget and meets your coverage needs, even with bad credit.

Improve your credit score

Improving your credit score takes time and consistency. Here are some detailed tips to help you improve your credit score:

Make On-Time Payments

Paying your loans on time is one of the best things you can do to improve your credit score. Your payment history is the most important factor in calculating your credit score, accounting for 35% of your FICO® Score. Late or missed payments can significantly impact your score. Set up autopay for at least the minimum amount due and create calendar reminders to ensure timely payments.

Pay Down Revolving Account Balances

The amount you owe is another critical factor, accounting for 30% of your FICO® Score. Lenders prefer a credit utilization rate (the percentage of available credit used) of 30% or lower. Aim to keep your credit card balances as low as possible by paying them off regularly. If you have high credit card balances, consider a debt consolidation loan, balance transfer credit card, debt management plan, or a debt repayment strategy.

Don't Close Your Oldest Account

The length of your credit history also influences your score, accounting for 15% of your FICO® Score. Avoid closing old credit accounts, even if you no longer use them, as this can shorten your credit history. Consider using your oldest credit card occasionally or putting a small recurring bill on it to keep it active.

Diversify Your Types of Credit

Having a mix of credit types, such as credit cards, student loans, mortgages, or auto loans, can positively impact your score. This factor accounts for 10% of your FICO® Score. However, avoid taking on unnecessary debt just to build credit. Your credit mix will likely improve over time as you apply for different types of credit.

Limit New Credit Applications

Each time you apply for new credit, a hard inquiry is made on your credit report, which can lower your score. Hard inquiries remain on your report for two years and impact your score for up to one year. Only apply for new credit when necessary, and consider prequalification, which uses a soft credit check that won't affect your score.

Dispute Inaccurate Information

Inaccurate information on your credit report can negatively impact your score. Review your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) and dispute any errors or fraudulent activity. Credit bureaus have 30 to 45 days to investigate and resolve disputes.

Look for insurance companies that offer discounts

When looking for auto insurance with bad credit, it's important to compare quotes from multiple companies to find the best rates and coverage options. While having bad credit can result in higher insurance rates, there are still ways to save on your premiums. One way is to look for insurance companies that offer a variety of discounts. Here are some common discounts to look out for:

• Good driver discount: Most car insurance companies offer discounts to drivers who have a clean driving record, free from traffic violations and at-fault accidents. Good driver discounts can range from 10% to 40%.
• Accident-free discount: Similar to the good driver discount, this discount rewards drivers who have not been involved in any accidents.
• Multi-policy discount: You can often get a discount of 5% to 25% if you bundle your auto insurance with other types of insurance policies, such as homeowners or renters insurance, from the same company.
• Paid-in-full discount: Paying your annual premium in full upfront rather than in monthly or quarterly installments can sometimes lead to a discounted rate.
• Paperless billing/electronic discount: Many companies offer a small discount for those who opt for paperless billing and electronic payments.
• Vehicle safety equipment discount: If your car is equipped with safety features such as anti-lock brakes, airbags, or daytime running lights, you may be eligible for a discount of up to 25% on your comprehensive coverage.
• Alumni, occupational, and professional discounts: Some insurers offer discounts to members of specific alumni associations, fraternities, sororities, or professional associations, as well as certain occupations like educators.
• Anti-theft discount: If your car has anti-theft features, you may be eligible for a discount of 5% to 25% on your comprehensive coverage.
• Good student discount: If you have a student driver enrolled full-time in high school or college with good academic standing, you may be able to get a discount of 8% to 25%.
• Multi-car discount: Insuring more than one car with the same company can often result in a discount of 8% to 25%.

Remember that not all insurance companies offer the same discounts, so it's important to shop around and compare the discounts offered by different insurers. Additionally, the availability of certain discounts may vary depending on your state and individual circumstances.

Choose a no-credit-check insurance company

While most car insurance companies use credit checks to create a credit-based insurance score to help set your rate, a few no-credit-check insurance companies exist. These companies can be a good option if you have a poor credit history, although purchasing car insurance from a company that doesn't check credit doesn't necessarily mean you'll pay a lower rate.

• Usage-based insurance companies: These companies base your monthly premium on the number of miles you drive each month, rather than a fixed annual or semi-annual rate. This type of insurance is also called pay-per-mile insurance and can be a cost-effective option for infrequent drivers. Some usage-based insurance companies that don't check credit scores include Root, MetroMile, Milewise from Allstate, and SmartMiles from Nationwide.
• Telematics insurance companies: This type of insurance uses a device in your vehicle or a mobile app to track your driving habits, such as average speed and how fast you brake. Based on this data, the insurance company will set your premium. Even if you have a poor credit score, safe driving habits may help you obtain a lower rate. Examples of telematics insurance programs include Progressive Snapshot, State Farm Drive Safe & Save, and Nationwide SmartRide.
• Geico: Geico offers some of the best rates for drivers with poor credit. Their average annual cost of $257 per month for full coverage is one of the cheapest options available.
• USAA: USAA offers the cheapest rates overall for drivers with lower credit scores, but their coverage is only available to military members, veterans, and their families.
• Farm Bureau: Farm Bureau offers car insurance at a discounted rate to its members. A full-coverage policy for a driver with poor credit costs $273 per month, and the annual membership fee is typically less than $100.
• Local no-check car insurance companies: Depending on your state, you may be able to find a local no-check car insurance company. For example, Dillo in Texas, Cure Auto Insurance in New Jersey and Pennsylvania, and Empower.

Raise your deductible

Raising your deductible is a way to lower your auto insurance premium. The deductible is the amount you pay out of pocket when you file a claim against your car insurance policy. For example, if your vehicle incurs $1,500 of damage and your deductible is $500, you'll pay that amount, and your insurer will cover the remaining $1,000.

Raising your deductible means you'll pay more each time you file a claim, so it's important to ensure you have enough savings to cover the higher costs. If you have strong emergency funds, increasing your deductible may be a good move as you'll benefit from lower premium costs, which could help you build your emergency fund further.

However, it's important to remember that if you get into an accident soon after raising your deductible, you could be out of pocket. It's also worth noting that not all states allow credit history to be used when setting car insurance rates. California, Hawaii, Massachusetts, and Michigan ban the use of credit scores in setting car insurance rates.

Frequently asked questions