Which States Penalize Drivers With Poor Credit the Most?

Your credit score is a factor in determining your car insurance rates in nearly every state; however, even in the four states that outright ban the use of credit scores in insurance pricing, some poor credit drivers are still penalized with significantly higher premiums.

MoneyGeek analyzed 2023 national premium data from Quadrant Information Services to explore how having poor credit impacts auto insurance premiums in every state. Our analysis found that, despite Michigan banning the use of credit scores in insurance pricing, drivers with poor credit there still see the most expensive auto rates in the nation. We also found that New Hampshire had the most affordable car insurance for drivers with bad credit. Additionally, our study determined the best insurers for people with poor credit to help these drivers secure affordable coverage options.

• U.S. drivers with poor credit pay 79% — or $867 — more for annual premiums for full coverage insurance than drivers with good credit, on average.

• Michigan imposes the heftiest premium increase for drivers with poor credit scores — 225.8% or $3,585 more annually — than drivers with high credit scores. There, poor credit drivers pay the country’s most expensive annual car insurance premiums — $5,172.

• New Hampshire offers drivers with poor credit the most affordable coverage in the country at $996 annually.

• By raising their credit scores by 51 points to the next highest credit rating, drivers with poor credit could save 21% or $527 annually on auto insurance.

As part of our analysis, MoneyGeek calculated how much auto insurance annual premiums increased for drivers with poor credit in every state. We found that drivers with poor credit pay an average of 79% — or $867 more — per year for full coverage car insurance than drivers with good credit.

Our study also found that the difference in insurance costs for drivers with poor credit in 14 states is higher than the national average. For example, drivers with poor credit scores living in Michigan, New York, Arizona, Nebraska and Minnesota pay over 100% more for their car insurance than drivers with higher credit ratings.

In addition to finding the states where the difference in premiums for drivers with good and poor credit is the highest, MoneyGeek determined the states where car insurance prices are highest overall for drivers with poor credit.

Michigan drivers with poor credit scores face the most expensive auto rates in the U.S., paying $5,172 annually. New York drivers were close behind, with the average provider charging drivers with poor credit $4,217 per year for insurance coverage, followed by Louisiana ($3,406). While Delaware didn’t make it onto our list of states with the biggest differences between insurance rates for drivers with good and poor credit, it was the fourth most expensive state overall for drivers with poor credit ($3,022).

While some states charge residents with poor credit scores significantly higher premiums for car insurance, others offer more affordable rates. MoneyGeek found that, on average, New Hampshire, Washington, Idaho, Wyoming and Vermont charge the cheapest annual auto insurance rates for drivers with poor credit.

MoneyGeek’s analysis found that these insurers were the best auto insurance companies for drivers with poor credit scores, offering the most affordable premiums nationally for the average driver with poor credit:

• GEICO
• Nationwide
• Allstate
• Travelers
• State Farm

If you are a past or present military member or are the immediate family member of someone with a military background, USAA offers the lowest auto insurance rate of $1,398 per year for drivers with poor credit scores.

Insurance companies' use of credit scores to determine car insurance rates isn’t just inconvenient: it presents significant opportunities for discrimination. The Federal Reserve Bank of New York found that having a low income is highly correlated with having a low credit score, meaning that drivers with the smallest car insurance budgets often pay the highest auto insurance costs.

“Someone without a credit history, for example, could be priced out of auto insurance, which can impact their ability to work, which in turn means they aren't able to build credit,” said Gates Little, CEO of altLine, a lending branch of The Southern Bank Company.

“This disproportionately targets immigrants and lower-income individuals despite impeccable driving records and can keep people in a cycle of poverty through outrageous premiums,” Little continued. “This is such a problem that four states have prohibited the use of credit scores in determining insurance rates.”

However, consumers don’t enjoy full protection in all four of these states. Despite the fact that Michigan law prohibits insurers from using credit scores to determine rates, insurers can still use an insurance score that uses elements of credit history; MoneyGeek’s study found that drivers with poor credit in Michigan paid the highest premiums of any state in the country.

The fact is that, even in states with regulations, getting car insurance with poor credit can be incredibly difficult. Fortunately, there are some measures consumers can take to find cheaper car insurance rates:

MoneyGeek analyzed 2023 auto insurance premium data from Quadrant Information Services by state, provider and credit score rating to determine average auto premiums for drivers with “Good” credit scores (769–794) and “Poor” credit scores (524–577).

We collected data on full-coverage policies at the most common liability level: 100/300/100 for a 40-year-old male driver with a 2012 Toyota Camry LE.

MoneyGeek calculated the difference in these premiums by state to find the states where having a poor credit score affects auto rates the most. We also analyzed the average savings on premiums between drivers with “Poor” credit ratings and the next rating level — “Below Fair,” which is 51 points higher than "Poor" — to estimate savings upon improving credit scores to the Below Fair rating tier.

California, Hawaii and Massachusetts were excluded from the analysis, as these states prohibit auto insurance providers from assessing rates based on credit scores. Though Michigan law prohibits insurers from using credit scores to determine rates, insurers can still use an insurance score that uses elements of credit history to determine rates. Michigan was included in the analysis, as significant price differences were found between drivers with Good and Poor credit.

If you have any questions about our findings or methodology, please reach out to Melody Kasulis via email at melody@moneygeek.com.

The data points presented are defined as follows:

• Difference in Cost (% Change): Percentage change in cost of annual premiums for full-coverage policy-holders with good credit versus poor credit.
• Difference in Cost ($): Difference in cost of annual premiums for full-coverage policy-holders with good credit versus poor credit.
• Poor Credit Premium: The average annual auto insurance premium for drivers with credit ratings ranging from 524–577 in the state.
• Good Credit Premium: The average annual auto insurance premium for drivers with credit ratings ranging from 769–794 in the state.