Traffic fines, accidents, and the automobile you drive all have an impact on your car insurance rates, but many people are surprised to learn that your credit can as well.
The average rate rise for people with bad credit is 76 percent, according to Forbes Advisor’s review of vehicle insurance rates in the 46 states that accept credit as a pricing consideration.
This equates to a yearly increase of roughly $1,180 on average.
For a variety of reasons, including the fact that credit has nothing to do with how you drive, the use of credit in car insurance pricing is divisive.
Auto insurance firms, on the other hand, point to studies that show credit-based insurance scores are a solid predictor of whether or not a driver will submit a claim.
Insurance firms point to research that show drivers with poor credit are more likely to submit claims, implying that these drivers are a larger risk for them and potentially more expensive to insure.
Your auto insurance premiums will rise as your risk and cost increase.
How Does Having a Bad Credit Score Affect Car Insurance?
Although the use of credit by vehicle insurance firms may appear to be a stretch, the insurance industry claims that statistics backs it up.
Studies show a link between the quantity and cost of claims and a driver’s credit score, according to a widely cited Federal Trade Commission report.
According to this logic, drivers with bad credit are considered bigger risks and, as a result, pay higher auto insurance premiums in most jurisdictions.
Consumer advocacy groups such as the Consumer Federation of America, on the other hand, have long claimed that using credit as a component in vehicle insurance rating is fundamentally discriminatory.
Only a few states agree that using a driver’s credit card is a bad idea.
Credit is not allowed to be used to establish vehicle insurance rates in California, Hawaii, Massachusetts, or Michigan.
Other state and even federal legislative conversations about eliminating credit as a rating factor for car insurance have taken place, but none have yet become laws.
State-by-State Increases in Average Car Insurance Rates for People with Bad Credit
According to our review of the 46 states that allow credit-based vehicle insurance scores to be used to determine auto insurance premiums, the five states with the lowest average annual increase for bad credit are all under 50%.
The smallest rise is in New York. The following are the states with the lowest average annual increases in bad credit:
New York has a 33 percent share.
Wyoming has a 39 percent unemployment rate.
Florida has 42 percent of the population.
North Carolina has 44% of the population.
Washington, DC: 47%
For drivers with bad credit, the five states with the highest average annual increase all quadruple the cost of insurance.
The state with the highest growth is Arkansas.
The following states have the highest average annual increases:
110% percent in Arkansas
109 %percent in South Dakota
Nebraska has a 108 percent approval rating.
105 % in Wisconsin
104 %percent in Utah
When it comes to dollar amounts, Wyoming has the smallest rise ($539) and Louisiana has the largest ($2,768).
For people with bad credit, the average car insurance rate rises.
State Average insurance rate % increase due to poor credit Average insurance rate $ increase due to poor credit
Alabama 75% $1,249
Alaska 58% $794
Arizona 81% $1,384
Arkansas 110% $1,759
Colorado 76% $1,345
Connecticut 72% $1,053
Delaware 83% $1,370
Florida 42% $1,227
Georgia 62% $1,022
Idaho 86% $1,038
Illinois 88% $1,187
Indiana 73% $910
Iowa 83% $1,000
Kansas 75% $1,228
Kentucky 73% $1,609
Louisiana 97% $2,768
Maine 95% $958
Maryland 72% $1,149
Minnesota 90% $1,577
Mississippi 84% $1,347
Missouri 61% $1,113
Montana 66% $1,063
Nebraska 108% $1,887
Nevada 55% $1,143
New Hampshire 86% $947
New Jersey 82% $1,387
New Mexico 54% $810
New York 33% $646
North Carolina 44% $560
North Dakota 85% $1,176
Ohio 78% $901
Oklahoma 66% $1,182
Oregon 73% $1,035
Pennsylvania 56% $807
Rhode Island 96% $1,844
South Carolina 83% $1,349
South Dakota 109% $1,851
Tennessee 97% $1,160
Texas 59% $784
Utah 104% $1,527
Vermont 86% $909
Virginia 75% $905
Washington 47% $542
West Virginia 73% $933
Wisconsin 105% $1,267
Wyoming 39% $539
For drivers with liability coverage of $100,000 per person, $300,000 per accident, and $100,000 for property damage (100/300/100), as well as collision and comprehensive insurance, we averaged the rate increases among significant insurers in each state.
Quadrant Information Services is the source of this information.
How Long Will My Car Insurance Rates Be Affected By My Bad Credit?
Unlike traffic fines, which usually disappear from your driving record after three to five years and have no effect on rates, a poor credit score can have a long-term impact on your vehicle insurance costs.
Your vehicle insurance prices may be altered if you have bad credit.
Raising your credit score is the best strategy to keep your vehicle insurance prices from rising.
It’s a fantastic time to compare auto insurance quotes once you’ve improved your credit score.
If you wait until your next renewal period to look around, make sure to ask your existing vehicle insurance company to check your credit, as some only do so every few years if you’ve been a long-time customer.
As your credit score improves, your existing insurance company’s premiums should improve as well—but don’t forget to check around.
If your credit score improves, another provider may be able to give you lower rates and be a better overall fit for your needs.
In terms of car insurance rates, how does bad credit compare to tickets, accidents, or a DUI?
Poor credit raises your premiums more than a speeding ticket or an accident, and possibly more than a DUI, depending on where you live and the scoring system used by your provider.
According to our research, auto insurance premiums for people with bad credit climb by 76 percent on average per year, yet rates for people who get a speeding ticket only rise by 21 percent.
After an at-fault accident, the average rate rises by 41%.
A DUI is a serious charge with numerous consequences, including a 74 percent rise in average vehicle insurance rates, which is still lower than the 76 percent increase we witnessed for drivers with poor credit.
However, in some jurisdictions, a DUI dramatically raises your rate compared to the average increase for low credit.
This was especially true in states where credit was not allowed to be used for rating purposes.
These four states have higher-than-average rate increases for DUIs because they limit the usage of credit:
California: 154%
Hawaii: 134%
Massachusetts: 91%
Michigan: 193%
We discovered that the rate rise for a DUI was substantially higher than the credit rate increase in several areas that allow credit to be used as a rating component.
Here are a few examples:
New York has a 68 percent rise in DUI rates compared to 33 percent for low credit.
In North Carolina, the penalty for a DUI is 319 percent more than the penalty for poor credit, which is 44 percent.
Wyoming has a 56 percent increase in DUIs compared to a 39 percent increase in poor credit.
Maintain a clean driving record and work for a decent or exceptional credit score in any state to get better rates.
You want to create a low-risk profile so that vehicle insurance providers would provide you with low-cost coverage.
In numerous places where credit might be used as a rating component, we noticed that the rate increase for a DUI was significantly higher than the credit rate increase.
Listed below are a few examples:
DUI rates have increased by 68 percent in New York, compared to 33 percent for people with bad credit.
The punishment for a DUI in North Carolina is 319 percent more than the penalty for having bad credit, which is 44 percent.
DUIs have increased by 56 percent in Wyoming, while poor credit has increased by 39 percent.
To receive better rates, keep a clean driving record and work for a good or excellent credit score in any state.
You want to establish a low-risk profile so that car insurance companies will provide you low-cost coverage.
Demonstrate your driving skills.
Sign up for a usage-based car insurance program if you want your driving habits to play a bigger role in how much you pay for vehicle insurance.
Your driving habits will be monitored by your insurance company.
Some suppliers can give you a discount of up to 40% if you score high.
Examine your insurance coverage.
Check your auto insurance policy to see if your needs have changed since you first bought it.
You can save money if you have an older automobile and don’t need collision and comprehensive coverage.
Make a comparison.
This is the most important piece of advice.
You won’t be able to find the best vehicle insurance prices until you browse around.
Because each insurer evaluates rating criteria like credit differently, you should shop around at least once a year to verify you’re getting the best deal.
For people with bad credit, car insurance rates go up.
We observed a wide variety of costs for drivers with poor credit after examining the rates of some of the leading auto insurance companies.
Geico had the least average yearly rates at $1,750, while Auto-Owners had the highest at $3,970.
That’s a difference of $2,220.
The range of premiums, with a 127 percent difference between the cheapest and most expensive, emphasizes the necessity of comparison shopping for vehicle insurance.
Nationwide is the firm with the lowest percent increase for bad credit drivers among those we looked at (35 percent ).
However, Nationwide does not have the best overall rate for bad-credit drivers; Geico surpassed them by $155.
That’s why, when evaluating costs, it’s critical to consider the overall premium, not simply the possible savings from discounts or how much rates rise for specific conditions.
Company Average annual rates with good credit Average annual rates with poor credit Average annual rate increase for poor credit
Geico $1,221 $1,750 43%
USAA $1,111 $1,865 68%
Nationwide $1,411 $1,905 35%
Travelers $1,499 $2,487 66%
Erie $1,182 $2,694 128%
Progressive $1,825 $3,052 67%
Farmers $2,073 $3,409 64%
Allstate $2,315 $3,617 56%
State Farm $1,403 $3,849 174%
Auto-Owners $1,520 $3,970 161%
We determined the average rate increase due to low credit for drivers with 100/300/100 coverage and collision and comprehensive insurance for each company.
Quadrant Information Services is the source of this information.
Which auto insurance companies don’t run credit checks?
If your state allows your credit history to be used as a rating component, it’s wise to assume that until a car insurance company clearly declares that it doesn’t evaluate credit when calculating price, it’s safest to assume that they all do.
California, Hawaii, Massachusetts, and Michigan are the only states that do not use credit scores to determine vehicle insurance prices.
As a result, if you live in one of these states, all auto insurance providers should disregard your credit history when determining your premiums.
In several other states, insurance firms are limited in what they may do using credit ratings.
In Maryland, for example, vehicle insurance companies are prohibited from utilizing credit history to determine whether or not to cover you, cancel your policy, renew your policy, or raise your price once it is in place.
Laws, on the other hand, allow for a credit check when you initially apply for a policy, and they influence how much you’ll pay from the start.
Insurance firms must also inform applicants if their credit history influences their rates and how much of their rate is based on their credit score, according to Maryland law.
Many state laws require vehicle insurance companies to inform you that your credit record may be checked and to notify you if the results are negative, such as higher premiums.
