Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Oct 7, 2020

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Key takeaways...

  • Your credit score can impact how much you pay for car insurance
  • Studies show people with bad credit are more of a risk for paying premiums on time and generally more likely to file a claim
  • It’s a good idea to check your credit report for errors on a regular basis

Not long ago car insurance companies started using your credit score as a factor in the risk assessment for calculating your car insurance premiums.

While car insurance is still readily available for drivers with bad credit rates can be much higher than those for drivers with good credit.

Credit reports determine your ability to finance a large number of things so even without the need for car insurance these tips can help most consumers.

To find the best insurance rates, enter your zip code above and start comparing quotes instantly!

Table of Contents

About Your Credit Report

Credit reports are often long, confusing and very difficult to read but it’s important to understand the basic elements of a credit report before searching for any financial product.

Your credit report includes a number of personal items including:

  • Full Legal Name and any Aliases
  • Known Street Addresses
  • Revolving/ Installment Accounts (open and closed) with limits
  • Payment History (up to 10 years) for all your accounts
  • Inquires: A count of people who have viewed your credit report
  • Credit Score: A number representing where you fall compared to other people. Above 700 is good – below 620 is not so good. In between 620 and 700 is fair.
  • Collection Account: Accounts that have been charged off or sent to collection
  • Public Filings: Such as judgments or bankruptcy or foreclosures

The information in your credit report is used to help determine (a) your creditworthiness and (b) your debt to income ratio.

The exact formula for creating your credit score has never been released but it usually is one of the key measures in determining whether or not a lender will even look at your loan application.

It is also a key factor how car insurance companies grade your application.

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How is bad credit relevant to car insurance?

Your credit score very likely has NO or very little relevance on the way you drive.  However, studies show people with bad credit are more of a risk for paying premiums on time and generally more likely to file a claim.

This argument makes sense however it certainly does not justify a 20 or 50 percent increase in bad credit car insurance rates.

How do I improve my credit score?

Whether or not you need car insurance now improving your credit score is something every consumer should learn how to do.

Its often reported that almost 30 percent of credit reports belonging to American consumers have errors – some small, some major.

Many times, disputing these errors with the credit bureau agencies will have the items removed.

You should also try to keep your balance under 50 percent of your available limit.

“Percentage of Available Debt” is a high scoring factor so if you have a credit card with a $5,000 limit and owe $4,900 then think of a way to split this balance up or pay it down to the credit agency views you are not maxed out.

Ironically, even if you pay your balance in full every month, carrying a balance close to your credit limit will almost always knock your score down.

You always use your turn signal before switching lanes, drive within the speed limit and yield to pedestrians in the crosswalk.

Your driving record has been spotless since the day you got your license, and your hands are always planted firmly at 10:00 and 2:00. So why are your insurance premiums so high?

Many people are baffled when they find out that they have to pay a rate that’s higher than the average for their car insurance.

Your credit score could be driving up your car insurance premiums and costing your thousands of dollars in extra fees.

Why do car insurers care about credit scores?

Most people don’t understand what their credit score has to do with their ability to safely operate a motor vehicle.

Your credit score has an impact on many facets of your life, from the type of job you can secure, to the cost of your home or vehicle, to the amount that you can borrow from banks.

Car insurers also take these numbers into consideration.

Your credit score gives the insurer a picture of your overall trustworthiness, the likelihood of paying on time and chances of getting into an accident and filing a claim.

The insurer uses your credit score as part of an overall picture of what it will cost the company to insure your vehicle.

In the eyes of the insurer, applicants with lower scores are a higher risk, and therefore the company must take precautions to protect itself from loss.

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Bad Credit is Not the End of the World

The credit score is only one factor that contributes to what you will pay in monthly insurance premiums.

Your driving record, your age, your marital status, the make and model of your car, your neighborhood and even your scholastic abilities all play a role in the final rate you’re offered.

Practice safe driving and avoid getting fines and tickets, and you will see your rate lower. In addition, many car insurance companies offer safe driver discounts as incentives for avoiding accidents.

Take advantage of these discounts to lower your car insurance premiums.

Take Steps to Repair Your Credit

While you’re enjoying your car, make affirmative steps to repair problem credit so that you can get a lower rate down the line.

The first step is to contact your creditors and try to work out a payment plan to eliminate and lower your debt as soon as possible.

Get a copy of your credit scores from the three major credit bureaus—Equifax, TransUnion and Experian, and review them for errors.

Pay off the debts with the lowest balances first, then work your way up to the higher balances. You can also try and find the best credit card for your situation.

There are many websites that compare credit cards for FREE! Just a few points difference in your score could mean thousands of dollars in savings.

Ask Questions

While most insurers do use the credit score as a factor in determining your overall rate, it’s not the only factor in your final rate. Some insurers give less weight to it than others.

Other factors such as your driving history, age and neighborhood might carry more weight than the credit score.

While there is no guarantee that your insurer will reveal how they calculate their percentages, you can certainly find out if the credit score is a major determining factor.

Ask your insurer how important the overall credit score is in calculating your final monthly premium.

Did you know that car insurance rates are often lower for new cars?

Many people are not aware that interest rates, car payments, and insurance can be less for newer cars than for older cars.

Insurers figure that newer cars have a smaller chance of being involved in a wreck, making it less costly to insure.

In addition, some dishonest drivers may get frustrated with the ongoing costs of maintaining an older car and intentionally wreck it in order to file an insurance claim.

All of these factors make it harder for honest drivers with credit problems to get low car insurance rates. Choosing a newer car may mean lower rates, even if your credit is less than perfect.

Contact us today to find out how much you can save every month. We realize that everyone struggles from time to time, and we’re eager to help you get your credit back on track. Get started now and drive those high premiums down today.

Ready to get car insurance quotes for FREE? Enter your zip code below to get started for FREE!

References:

  1. https://en.wikipedia.org/wiki/Credit_score
  2. https://www.geico.com/auto-insurance/accident-forgiveness/
  3. https://www.nationwide.com/how-much-is-car-insurance.jsp
  4. https://www.creditkarma.com/auth/logon
  5. https://www.geico.com/save/discounts/defensive-driver-discounts/
  6. https://www.transunion.com/
  7. https://www.wikihow.com/Check-Your-Driving-Record-Online