The Best Car Insurance for Drivers With Bad Credit

Bad credit can cause problems in almost every part of your finances and your car insurance is no exception. In many states, drivers with lower credit scores can expect to pay more — sometimes significantly more — for their car insurance than drivers with high credit scores.

One way to find the best car insurance for bad credit is to get multiple quotes from different providers. For instance, MoneyGeek collected quotes for a sample driver and found that GEICO charges an average of $1,676 per year for drivers with poor credit, while MetLife charges $4,208. Read on to learn about the cheapest car insurance companies for different credit scores, why credit scores impact insurance and strategies to get lower rates if you do have poor credit.

If your insurance rate is high because of your credit score, switching companies could help you save money. MoneyGeek's analysis compares rates for a driver with a full coverage policy to narrow down a list of the most affordable companies for drivers with a credit score between 524 and 577. We found that GEICO and Nationwide have cheapest rates for most drivers. If you come from a military background, USAA is the cheapest option on average.

*In this study, a poor credit score is defined as a score in the range of 524–577.

Rates are for a driver with 100/300/100 liability insurance and comprehensive and collision coverage. Keep in mind that if you're not just looking for the cheapest quote, the best car insurance company for you will combine a strong customer service experience with affordable rates.

Because drivers with higher credit scores tend to pay less for car insurance, taking steps to improve your credit could help you save money. In MoneyGeek’s study, when all other factors remain the same, such as driving record and vehicle type, drivers with a fair credit score paid less than drivers with a poor score.

MoneyGeek found that the two cheapest insurance companies for drivers with fair credit are the same as those for drivers with poor credit: USAA and GEICO. However, State Farm is much more affordable for drivers with fair credit, overtaking Nationwide, Allstate and Travelers.

*In this study, a fair credit score is defined as a score in the range of 710–740.

There are a number of reasons your credit score may impact your insurance premium. FTC studies show a correlation between a driver’s credit score and the frequency and cost of claims, causing insurance companies to rate people with lower credit scores as higher-risk drivers. According to the FTC, the lower a driver’s credit score, the more likely they are to file a claim.

For insurance pricing, a higher credit score means you are more likely to be able to pay your bills, which means you are less likely to miss payments or commit insurance fraud. Essentially, an insurance company is designating you as higher risk.

Insurance companies also know that credit scores and income tend to climb or fall together, which means that a higher credit score makes you more likely to pay for minor damages out of pocket rather than file a claim.

As a result, people with low credit scores will typically see higher insurance premiums in all but three states. California, Massachusetts and Hawaii all have laws on the books that prevent insurance companies from rating their customers by their credit score.

Your credit score is only one factor in determining your insurance rates. If you're curious about how car insurance works and impacts your rates, there are several factors that play a part in how you're rated such as your ZIP code, age, and driving history.

That said, your credit score can still have a large impact on your monthly premium. Take a look at the table below to see how having a slightly higher credit score can save you hundreds of dollars each year on your car insurance.

In all but a few states, bad credit can and will raise your insurance rates. There are, however, some ways to help mitigate that price increase and find lower rates:

Just because your credit rating is low doesn’t mean you can’t shop for the best possible auto insurance. There are many ways to lower your insurance rates, including:

• Take advantage of discounts. Most insurance companies offer a wide variety of discounts to their customers. Good driving discounts, employer discounts and loyalty discounts are all excellent ways to help reduce your insurance costs.
• Improve your credit rating. Spend the next six months to a year working on raising your credit score to reduce your insurance costs.
• Pay Your Full Annual Premium at Once. Many insurance companies offer discounted rates to individuals who pay their entire premium upfront rather than paying in monthly increments.

For drivers with low credit scores, working to improve your credit is the best way to reduce your insurance premiums. There are a number of ways to work toward improving your credit score, including:

• Set up automatic bill pay. If your credit score is low because your payments are consistently late, setting up automatic payments is an easy way to address that problem.
• Pay off balances every month. One of the best ways to reduce your credit utilization is to pay off your full balance on a monthly basis. This can also help you avoid interest payments, saving you money over time.
• Work with credit agencies to bump your score. Many credit agencies will allow you to add regular on-time rent and utility payments to your credit score. Call the agencies directly and ask how to make sure your positive payment history is working in your favor.
• Don’t apply for new accounts for a while. Every application you make for additional credit causes a hard inquiry on your credit report, lowering your score. If you need to raise your credit score, it is important not to open any new accounts for a while to prevent those hard inquiries.
• Dispute any errors. Every year you have the right to get a free copy of your credit report. It is worth the time to get these reports and go over them to make sure everything is correct. If a creditor is erroneously reporting you as delinquent, or you have been the victim of identity theft, you can clean up your credit report and see an increase in your credit score.