Car Insurance with Bad Credit: Everything You Need to Know

Having bad credit can have a negative impact on various aspects of your life, including your ability to obtain affordable car insurance. Car insurance companies often use credit scores as one of the factors to determine the rates and premiums for their policies. In this article, we’ll discuss the impact of bad credit on car insurance rates and what you can do to improve your situation.

What is Bad Credit?

Your credit score is a three-digit number that represents your creditworthiness based on your previous credit behavior. A score between 300 and 579 is considered bad credit, while a score above 580 is considered fair, good, or excellent. Many factors can contribute to a low credit score, including missed payments, high credit card balances, and bankruptcy.

Your credit score is one of the factors that insurers use to determine your risk level as a policyholder. People with good credit scores tend to have lower rates and premiums since they are seen as more financially responsible than those with bad credit scores.

Why Does Credit Score Matter for Car Insurance?

Car insurance companies use credit scores as part of their underwriting process to determine your risk as a policyholder. According to the Federal Trade Commission (FTC), studies have shown that people with low credit scores are more likely to file claims and have higher claim costs than people with higher credit scores.

Insurers also use credit scores to determine the likelihood of policyholders making timely payments. People with low credit scores are more likely to miss payments, which can lead to policy lapses, cancellations, or non-renewals.

How Does Bad Credit Affect Car Insurance Rates?

If you have bad credit, you can expect to pay higher rates and premiums for car insurance. According to a study by The Zebra, people with bad credit pay an average of $1,427 more per year for full coverage car insurance than people with good credit. In some states, the difference can be even higher.

Insurers see people with bad credit scores as high-risk policyholders who are more likely to file claims and have accidents. To offset this risk, insurers charge higher rates and premiums to compensate for potential losses.

How Can You Improve Your Credit Score?

If you have bad credit, you can take steps to improve your credit score over time. Some of the things you can do include:

If you have a poor credit history, it may take some time to rebuild your credit score. Be patient and consistent with your payments and your credit behavior, and you’ll eventually see the results.

Can You Get Car Insurance with Bad Credit?

Yes, you can still get car insurance with bad credit, but you may have limited options and higher rates. Some insurers specialize in providing car insurance to people with bad credit, so it’s worth checking with them to see if you can get a better rate.

You can also shop around and compare rates from different insurers to find the best deal. Don’t be afraid to negotiate or ask for discounts or lower rates. Some insurers offer discounts for safe driving, multiple policies, or being a loyal customer.

FAQ

1. Can car insurance companies check your credit score?

Yes, car insurance companies can check your credit score as part of their underwriting process. They use credit scores to determine your risk level as a policyholder and to set rates and premiums.

2. How often do insurers check your credit score for car insurance?

Insurers may check your credit score when you apply for a new policy, renew your policy, or make changes to your policy. Some insurers may check your credit score more frequently than others.

3. Do all states allow insurers to use credit scores for car insurance?

No, not all states allow insurers to use credit scores for car insurance. Some states have banned or restricted the use of credit scores as part of their anti-discrimination laws. However, most states still allow insurers to use credit scores as one of the factors to determine rates and premiums.

4. Can you dispute an error on your credit report?

Yes, you can dispute an error on your credit report by contacting the credit reporting agency or the creditor who reported the error. You’ll need to provide proof of the error and explain why it’s incorrect. The agency or the creditor can investigate the dispute and correct the error if necessary.

5. How long does it take to improve your credit score?

It depends on your credit history and the actions you take to improve your credit score. Some people may see an improvement in their score within a few months, while others may take several years to see a significant change. Be patient and consistent with your payments and credit behavior, and you’ll eventually see the results.