In 43 states, your credit score directly affects your car insurance rate. Drivers with poor credit pay an average of 65 percent more than drivers with excellent credit for identical coverage. Here is how to minimize the impact.
How Much Does Bad Credit Raise Your Car Insurance Rate
Insurance companies use a credit-based insurance score — different from your FICO score but correlated — to predict claim likelihood. The average annual premium by credit tier: exceptional credit above 800 pays $1,620, good credit 670–739 pays $1,980, fair credit 580–669 pays $2,640, and poor credit below 580 pays $3,300. Moving from poor to good credit saves an average of $1,320 per year on auto insurance alone.
Best Car Insurance Companies for Bad Credit Drivers
Not all insurers penalize bad credit equally. Geico typically applies a lower credit surcharge than competitors, making it the cheapest option for many bad-credit drivers. Progressive also tends to be competitive for bad-credit drivers due to its focus on non-standard auto insurance. State Farm applies relatively moderate credit surcharges. The worst insurers for bad-credit drivers are typically Allstate and Liberty Mutual which apply higher surcharges. Always compare at least 4 quotes — the variation for bad-credit drivers between insurers can exceed $2,000 per year.
States That Prohibit Credit-Based Insurance Pricing
California, Hawaii, Michigan, and Massachusetts prohibit insurers from using credit scores to price auto insurance. If you live in one of these states, your credit history cannot affect your auto insurance rate. Focus instead on your driving record, telematics enrollment, available discounts, and shopping quotes annually. Drivers in these states pay rates based purely on driving behavior, vehicle, location, and demographic factors.
How to Improve Your Credit Score for Lower Insurance Rates
Improving your credit is the highest-ROI strategy for bad-credit drivers. Pay all bills on time for 12 consecutive months — this has the largest single impact on your score. Reduce credit card balances below 30 percent of your credit limit — this can improve your score within 30–60 days. Dispute errors on your credit report since 34 percent of consumers have at least one error according to the FTC. Avoid opening new credit accounts for at least 6 months. Become an authorized user on a responsible family member's credit card. Most drivers see meaningful rate reductions within 12–18 months of consistent credit improvement.
Immediate Strategies While Improving Your Credit
While working on credit improvement, these strategies reduce premiums now: shop quotes from at least 5 insurers since credit surcharges vary dramatically; bundle with renters insurance since multi-policy discounts apply regardless of credit; raise your deductible; enroll in telematics since usage-based pricing can offset credit-based pricing; and maintain a perfect driving record since violations compound the bad-credit penalty at most insurers.