If your credit score has suffered after a foreclosure, your auto insurance premium might increase as a result.
A foreclosure impacts car insurance by lowering your credit score. Most car insurance companies use credit score as a key indicator of risk and a major pricing factor. Historical data show drivers with poor credit file more claims — and more expensive claims — than do drivers with good-to-excellent credit. Having poor credit, which can occur as a result of foreclosure, can make your car insurance premiums more expensive.
Car insurance companies are in the business of predicting how much risk you pose as a potential client. One tool insurers use to estimate risk is credit. Studies from the Federal Trade Commission indicate drivers with poor credit take more risks while driving and file more insurance claims.
As a result, expect a higher insurance premium if your credit is low. See below average car insurance rates by credit level in 2018.
|FICO Credit Tier||Average Annual Premium|
|Very Poor (300-579)||$2,687|
|Very Good (740-799)||$1,495|
As you can see, the difference in car insurance costs between very poor credit and exceptional credit is an average of $1,430 per year. While this price gap varies by situation, the average credit score drop after a foreclosure filing is 250 to 280 points. If you had exceptional credit before and you dropped by 260 points, this would put you in the “fair” range, resulting in a $935-per-year increase in your insurance premium.
It may seem unfair, but car insurance companies are simply using the available data to insulate themselves from risk. Some insurance companies do not use credit score — or use it to a lesser extent — to price policies.
If your credit has taken a hit after a foreclosure, it can take years of careful budgeting to improve it. Finding affordable insurance will be a pivotal part of that. Here are some ways to keep your insurance costs low.
Telematics and usage-based insurance (UBI) profess to provide “car insurance based on how you drive, not who you are.” They use in-car devices to monitor your driving habits, creating premiums based on the following risk factors:
With usage-based insurance, credit score is not as impactful a factor as it is with a standard rating model. If everything else on your profile is near-perfect, but your premium is elevated because of a foreclosure, this model might be a good solution.
For more information on usage-based insurance, including participating insurance companies and rates, see our guide here.
If your vehicle is worth less than $4,000, you might not need your comprehensive and collision coverage. On average, these coverages can take up half of your insurance premium. Unless you have a lease or lien on your vehicle, they’re not required by law. The only required coverage is liability coverage.
Determine the value of your vehicle by using Kelley Blue Book or NADA online. If your vehicle is worth more than $4,000 but you’re still looking to change your coverage, consider raising your deductible. Deductibles and premiums are inversely related: if you raise your deductible, you lower your premium. See below average annual insurance rates for a 2013 Honda Accord with $500 and $1,000 deductibles.
|Coverage Level||Average Annual Premium|
|50/100/50 w/ $500 Deductible||$1,427|
|50/100/50 w/ $1,000 Deductible||$1,268|
A higher deductible can be helpful to discourage you from overusing your coverage, which could save you some money.
Sometimes it makes financial sense to not use your car insurance. For instance, if the damage was caused by you and involved only your vehicle — such as a collision with a fixed object. Oftentimes, the damage to your vehicle is less than the premium increase you would face after filing an at-fault collision claim on your premium. Here’s how to tell:
For more information regarding when to file a claim, see our guide here.
Your insurance company will typically sign you up automatically for discounts for which you're eligible. It's still worth reviewing your insurance policy to see if there’s anything you might be missing. Some, like a good student discount or membership associate discount, will require proof. Below is a list of common car insurance discounts.
For a full list of popular car insurance discounts, see our guide here.
Shopping for car insurance quotes from as many companies as possible is the best way to save. While State Farm might charge you more based on your credit score, GEICO might not. Keep in mind alternative insurance rating models, such as telematics programs like Root Car Insurance and Metromile. The only way to know for sure is to shop around. Enter your zip code below to see how much you can save.
Not ready to buy? Check out our additional articles relating to credit scores and car insurance!
In 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 premiums to identify trends for auto insurance rating factors across all US zip codes, averaged by state — including Washington, D.C.
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.
Rate data may vary slightly throughout report based on rounding.