Bad Credit? Here's Where To Get Auto Insurance

If you have bad credit, you can still get auto insurance, but it will likely be more expensive. Poor credit can increase your insurance rates by an average of 88% per year. This is because people with bad credit are statistically more likely to file insurance claims, and insurance companies view them as a higher risk.

In most states, insurance companies can use your credit history to set your premiums. However, California, Hawaii, Massachusetts, and Michigan ban the use of credit scores in setting car insurance rates. In these states, you can get no-credit-check auto insurance.

To find the best auto insurance rates if you have bad credit, it's important to shop around and compare quotes from multiple companies. Some companies that offer cheap auto insurance for those with bad credit include GEICO, Nationwide, Dairyland, Direct Auto, and Progressive.

How to save on car insurance with bad credit

If you have bad credit, you will likely pay more for car insurance. However, there are still ways to save money on your car insurance. Here are some tips to help you lower your insurance rates:

Shop around for the best rates

Compare quotes from different insurance companies to find the best deal. The cheapest car insurance companies for drivers with bad credit include Dairyland, Direct Auto, Progressive, Nationwide, GEICO, American Family Insurance, and Mercury.

Take advantage of discounts

Most insurance companies offer a variety of discounts, such as bundling multiple policies, multi-vehicle, good driving, employer, and loyalty discounts. Ask your insurance agent to review all possible savings opportunities.

Improve your credit score

Pay your bills on time, keep your credit utilization low, and dispute any errors on your credit report. Improving your credit score may take time, but it can help reduce your insurance premiums in the long run.

Increase your deductible

By raising your deductible, you can lower your monthly insurance payments. However, keep in mind that you will have to pay more out-of-pocket if you need to file a claim.

Reduce your coverage

Evaluate your circumstances and determine if you have more insurance coverage than you need. For example, if your car is older and has low repair and replacement costs, you may not need comprehensive and collision coverage.

Pay your full annual premium at once

Some insurance companies offer discounted rates if you pay your entire premium upfront instead of in installments.

Consider usage-based insurance

If you don't drive often, consider usage-based or pay-per-mile insurance. These programs track your driving behaviour and can offer discounts for safe driving or low mileage.

No-credit-check insurance companies

• Usage-based insurance: With this type of insurance, your monthly premium is based on the distance you drive, rather than a fixed annual or semi-annual rate. This is also called pay-per-mile insurance, and it can be a cheaper option for infrequent drivers. Some usage-based insurance companies that may not check your credit score include:
• Root Insurance: Available in Michigan, New Jersey, and Pennsylvania.
• Dillo Insurance: Available in Texas.
• Milewise from Allstate
• SmartMiles from Nationwide
• Telematics insurance: This type of insurance uses a telematics device or mobile app to track your driving habits, such as average speed and how fast you brake. Even if you have a poor credit score, demonstrating safe driving skills may help lower your premium. Some telematics-based insurance programs include:
• Progressive Snapshot
• State Farm Drive Safe and Save
• Nationwide SmartRide

It's important to note that no-credit-check policies may have higher premiums than standard car insurance policies. This is because the insurance company is creating a protective buffer around their financial risk.

Additionally, there are a few states that prohibit insurance companies from using your credit score to determine your insurance rates: California, Hawaii, Massachusetts, and Michigan. In these states, insurance providers offer no-credit-check car insurance by default.

Why is car insurance more expensive for drivers with bad credit?

Car insurance companies use a credit-based insurance score to evaluate the risk of a driver filing insurance claims. This score is calculated using information from your credit report, including your payment history and credit mix. While it's similar to a credit score, it's not the same, and it's not available to the public.

In most states, insurance providers are legally allowed to use your credit history to set your premiums. Poor credit is seen as a risk factor for frequent insurance claims, and drivers with low credit scores are statistically more likely to file claims. As a result, insurance companies charge higher rates to compensate for the added risk. The higher your credit rating, the lower your insurance premium tends to be.

The impact of your credit score on your insurance costs can vary significantly depending on the insurance company, as each insurer has its own proprietary underwriting process. However, the difference in insurance costs between drivers with good and poor credit can be significant. For example, a driver with poor credit may pay nearly double the cost of a driver with good credit for the same coverage.

To improve your credit score, you can make timely payments, keep your credit utilization low, and dispute any errors on your credit report. Additionally, you can take advantage of discounts, pay your full annual premium at once, and compare quotes from different insurance providers to find the best deal.

How to improve your car insurance credit score

Improving your car insurance credit score can lead to more affordable insurance premiums. Here are some steps you can take to achieve that:

• Pay your bills on time: Making timely payments is one of the best ways to increase your score. Late or missed payments can negatively impact your score and signal to insurers that you are a potential risk.
• Keep hard credit inquiries to a minimum: Hard credit inquiries occur when you apply for a new line of credit, and too many of them can lower your score. Soft inquiries, such as those done by insurance companies when providing quotes, do not affect your score.
• Monitor your score regularly: Keeping an eye on your credit score can help you identify errors or signs of identity theft and allow you to take proactive measures to improve your score.
• Maintain old lines of credit: Keeping long-standing credit accounts can positively impact your score. The length of your credit history is a significant factor, accounting for 15-20% of your score.
• Be aware of your credit utilization ratio: This is the ratio of your credit card balances to your credit limits. It's recommended to utilise no more than 30% of your available credit to maintain a good credit score.
• Set up automatic bill pay: If late payments are an issue, setting up automatic payments can help ensure that your bills are paid on time.
• Pay off balances every month: Paying off your credit card balances each month can help reduce your credit utilisation and save you money on interest payments.
• Work with credit agencies: Many credit agencies will allow you to add regular, on-time rent and utility payments to your credit report, which can help improve your score.
• Don't apply for new accounts: Each new credit application results in a hard inquiry, which temporarily lowers your score. Avoid opening new accounts for a while to give your score a chance to recover.

Best car insurance companies for drivers with bad credit

If you have bad credit, you can still get car insurance, but you may have to pay more for it. In the US, insurers in all states except California, Hawaii and Massachusetts can use your credit history to set your premiums when writing a new policy. Poor credit is seen as a risk factor for frequent insurance claims.

According to Bankrate, Dairyland, Direct Auto and Progressive are good options for drivers with bad credit. Dairyland specialises in insuring high-risk drivers and offers non-standard auto policies with potential add-ons like gap insurance, rental reimbursement and special equipment coverage. Direct Auto offers flexible payment plans and uncommon discounts, but has limited add-on coverage options. Progressive has strong digital tools, a long list of potential discounts and was named the 2024 Bankrate Award winner for Best Auto Insurance Company for High-Risk Drivers.

MarketWatch recommends USAA, Geico, Nationwide and Progressive as the best companies with cheap auto insurance for those with lower credit scores. Nationwide is also recommended by MoneyGeek as the cheapest and best car insurance for drivers with bad credit, with an annual average of $1,374 for full coverage.

NerdWallet's top pick for the best car insurance company for 2024 is Travelers, followed by Auto-Owners, American Family, State Farm, USAA and Geico. However, it's worth noting that USAA insurance is only available to active military, veterans and their families.

Frequently asked questions