Having bad credit isn't a death sentence, especially when it comes to car insurance
Having bad credit, regardless if it’s from student loans or a bad gambling problem, can hinder your relationship with a lot of institutions. The one you might not necessarily think of is auto insurance. Your credit score is one of the biggest non-driving rating factors in determining your car insurance premium. The difference in premium between those with an excellent credit score and poor credit is nearly 50% — with drivers with poor credit paying $1400 more per year. Because of this, we decided to compare car insurance companies using the same user profile who also happens to have bad credit. Let’s get started.
Using a profile outlined here, we surveyed 7 companies to see which company offers the cheapest rates for drivers with generalized credit scores. As you can see, those with very poor credit (between 300-579) pay an average of $2,646 a year for auto insurance across the surveyed car insurance companies.
Annual Premium by Credit Score
|Company||Very Poor (300-579)||Fair (580-669)||Good (670-739)||Very Good (740-799)||Great (800-850)|
Looking at the data above, you can see Nationwide is the cheapest insurance company to get insurance if you have credit ranging from poor to fair. Bear in mind, however, that this is only the cheapest company for our user profile. Your best bet for finding affordable insurance is to compare with as many companies as possible, as we did. But using the information again, maybe begin your search with Nationwide.
Car insurance companies and most companies in the insurance industry, try to use as much data as possible in order to predict what kind of risk they will be presented with from their customers. Using their own historical data and data from the Federal Trade Commission, they have deduced that drivers with poor credit tend to file more claims than drivers who have excellent credit.
Moreover, their data shows that when drivers with poorer credit do file a claim, the payout by the insurance company tends to be higher than other credit pools. All in all, this makes drivers with better to great credit scores cheaper clients to insure — thus, their premiums are lower.
This isn’t an easy question to answer because it depends on your state. So far, California, Hawaii, and Massachusetts are the only states that do not use credit score as a rating factor. So, if you live in those states, it’s safe to say your insurance isn’t being impacted by your credit score.
Outside of state-specific legislation, you will find most large car insurance companies will and do use your credit score as a rating factor. But, the trick here is to look for the company that view this negative in the most positive light. While there isn’t an insurance company that sees bad credit as a positive rating factor, they won’t all view you as uninsurable. Each insurance company has their own risk analysis department and thus will charge you differently — thus why all the premiums above are not the same.
Because your credit score is such a pivotal non-driving rating factor, it will be hard to negate its effects with a few discounts. But by doing your homework and trying to get as many discounts as possible, you could rack up some savings. Let's explore.
Being smart with your claims means don’t file a claim unless the damages to your vehicle are greater than your deductible and the rate increase you will receive. For example, in Texas, an at-fault accident raised car insurance rates in 2017 an average of 43%. The average premium in Texas is $1,810. Meaning, after an at-fault accident, your rates will bump up to $778 a year making your total premium $2,588.
Now, you should also consider that most insurance companies will raise your rates for 3 years after an at-fault accident. So that 43% increase will stay on your premium for 3 years. Making that $778 jump up to $2,334. That increase alone is more than the value of your premium without any violations on your record.
So, when thinking if it’s worth it to file a claim, you should think what the estimated cost of repairs is versus what you would end up paying after your rate is increased. To find out what you would be paying for your state, see our State of Insurance data here.
Unlike fine wine, your car depreciates pretty rapidly. What this means in terms of insurance savings is that the coverage you once had on your 1999 Geo might not be necessary anymore. Here how to tell:
Vehicles that have a lien or loan are usually required to maintain physical coverage as the lienholder has a vested insurance in the vehicle.
You can determine this through Kelley Blue Book or NADA.
Ask your insurance company how much premium your collision and comprehensive is per policy period. If the value of that premium is greater than the cost of your vehicle plus your deductible, you probably don’t need it. These coverages are designed to cover you in the event of a total loss, but if you’re paying more to insure the vehicle than you would get from a claims payout, you’re probably losing money.
If you go through these steps and determine you do need coverage, consider raising your deductible. This will not only discourage you from filing a claim but help lower your premium. By taking away some of the financial responsibility away from your insurance company, you lower your premium.
Follow our lead and shop with as many companies as possible in order to find the cheapest rate for you. Don’t be afraid to look at non-standard companies (i.e., the ones you haven’t heard of) as they may be more inclined to offer you a better rate than some of the bigger names.
If you're still looking for more ways to save or more information on rating factors and car insurance, check out our additional resources.
Between September and December 2017, The Zebra conducted comprehensive auto insurance pricing analysis using its proprietary quote engine, comprising data from insurance rating platforms and public rate filings. The Zebra examined nearly 53 million rates to explore trends for specific auto insurance rating factors across all United States zip codes, averaged by state, including Washington, DC.
Analysis used a consistent base profile for the insured driver: a 30-year-old single male driving a 2013 Honda Accord EX with a good driving history and coverage limits of $50,000 bodily injury liability per person/$100,000 bodily injury liability per accident/$50,000 property damage liability per accident with a $500 deductible for comprehensive and collision. For coverage level data, optional coverage (that must be rejected in writing) is included where applicable, including uninsured motorist coverage and personal injury protection.
National property and casualty losses information is from the Insurance Information Institute and the NOAA National Centers for Environmental Information U.S. Billion-Dollar Weather and Climate Disasters report.
For vehicle make and model data, analysis referenced the most popular vehicles in the U.S. by 2016 year-end sales according to Goodcarbadcar.net’s automakers’ data.
Finally, some rate data may vary slightly throughout report based on rounding.
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