UPDATED: AUGUST 12, 2023 | 3 MIN READ
California, Hawaii, and Massachusetts have banned using credit scores to determine insurance risk. If you live in those three states, you can get car insurance without a credit check! Unfortunately, if you don’t live in one of these states, your credit score will probably play a part in your monthly insurance premium.
Can I get auto insurance with a bad credit score?
There are more important contributing factors to your monthly premium than your credit scores, such as your claims history and the current value of your daily driving vehicle.
Credit history can reveal historical tendencies and traits that insurance companies consider risky.
However, finding car insurance coverage with a low credit score is still possible, especially if you have a clean driving record.
There are more important contributing factors to your monthly premium than your credit scores, such as your claims history and the current value of your daily driving vehicle.
Credit history can reveal historical tendencies and traits that insurance companies consider risky.
However, finding car insurance coverage with a low credit score is still possible, especially if you have a clean driving record.
Why do auto insurance companies require credit checks?
When contacting an auto insurance company, the agent must first evaluate risk. Your credit score can affect your considered risk level.
A low credit score can also drive away top auto insurers trying to focus their efforts on the top 25% of safe drivers to minimize their exposure to risk. A poor credit score can penetrate parts of your life that you may not have imagined.
Studies have shown that the difference annually that an insured individual will pay if they have good credit versus a poor FICO credit score of 579 or lower can be several thousand dollars over 12 months. And when you have a low credit score, you might be deemed such a high risk that you need second-chance car insurance.
States like Michigan have the most dramatic increase in auto insurance premiums due to low credit scores. Monthly insurance payments in these states could increase by as much as $400, surpassing your car payment.
Why does a low credit score increase your risk to insurance companies?
A credit score is often used to estimate someone’s financial security. Auto Insurance companies believe that drivers with low credit scores are at a greater risk for two main reasons:
Frequent claims or non-payment
Top insurance companies such as Farmers, Allstate, Travelers, and AAA believe drivers with lower credit scores are more likely to file frequent small claims for minor incidents. The reason is that these drivers will have less cash to make repairs out-of-pocket.
Since they expect drivers with lower scores to use their service more, they raise premiums accordingly. They may also worry about the ability of these drivers to pay insurance premiums on time and reliably. In the case of financial difficulties, paying insurance premiums may not be the top priority.
Fraud
Low credit scores are often directly correlated with a driver’s likelihood to file a claim against their vehicle. While highly illegal, filing an insurance claim under pretenses could be a short-sighted ploy to obtain some much-needed cash in their time of need.
Will credit checks from auto insurance quotes hurt my credit score?
Being concerned about unneeded credit checks affecting your score is perfectly natural. The last thing you want to do when trying to improve your credit score is to deflate it with unneeded hits!
Luckily, most credit checks auto insurance companies perform don’t affect your credit scores like applying for a credit card or car loan.
- Soft credit checks: Credit checks for auto insurance will typically be Soft Credit Checks. A soft credit check will appear on your credit report, often only visible to you.
- Hard credit checks: A loan office or credit card company performs a Hard Credit Check. This type of inquiry lowers your score and is usually only done when you’re opening a new loan or credit card. It’s more intense than just.
There are a few guidelines you can follow to protect your credit score while searching for quotes:
- Always ask before permitting to check your score: A hard credit inquiry can’t be done without your permission. If you’re on the phone with an auto insurance agent, and they ask to do a credit check, don’t just say yes. It’s important to ask whether their quoting process involves a hard credit check that could affect your score.
- Providing your credit score is not a credit check: Voluntarily supplying your credit score will never count as a hard inquiry. You can check your credit score yourself at any time — without lowering it — through several websites.
How can I tell my credit score is too low to save on car insurance?
Each auto insurance company has different “low” credit score standards. Some accept only Excellent credit, while others are happy to accept Good or even Average credit scores. That’s why it’s important to compare car insurance quotes.
If your credit is considered Poor, you may have trouble finding cheap car insurance in your state. But don’t give up hope. Some “non-standard” auto insurance companies specialize in high-risk drivers and prefer customers with low credit scores.
Always shop around to find the best rate regardless of your credit score.
If your credit score improves, get a new car insurance quote
In the same way that auto insurance companies use credit checks to evaluate your potential for an accident, they can also use positive credit check results to reduce your monthly premiums!
If your agent lists a low credit score as a reason for increased monthly premiums, you should demand that they review your account again once your credit score has improved.
Will lack of credit history increase my car insurance premiums?
In addition to a low credit score, a lack of credit history is another indicator that insurance companies use to flag potentially risky clients.
Studies show that members with little to no credit history tend to pay up to 50% more for auto insurance than those with established credit scores.
However, many of these are new drivers in their teens and twenties who have just passed their driving test, and this may be the real reason they’re paying more.
If you are a new or inexperienced driver with an unestablished credit score, researching which insurance companies place less value on credit standing will undoubtedly benefit you in the long run.
It does need to be said that the easiest way to begin establishing a credit score is to open a credit card with your local bank and begin practicing good financial habits.
If opening a credit card is not an option, transferring a car loan into your name instead of your parent’s or even opening a department store credit card are great ways to get your foot into the door with low risk!
How to get auto insurance without providing your credit score
California, Hawaii, and Massachusetts have partially banned using credit scores to determine auto insurance rates. If you don’t live in one of these three states, telematics is another way to get an auto insurance quote without providing your credit score.
Get a quote from a company using telematics to see how well you drive.
You can get a quote from an insurance company that uses telematics instead of standard risk assessment. These companies determine their risk assessment by evaluating your actual driving during a trial period instead of using other factors to guess how you’ll drive. These companies are ideal for young drivers with no credit history or older drivers with low credit scores.
How to get auto insurance with a low credit score
Credit scores will play a part in monthly auto insurance premiums for most drivers. If you’re worried that below-average credit will raise your rates, call your agent and ask the critical questions! It’s never too late to shop for a new policy or improve your credit score to show your insurance agent that you care.
If you don’t live in California, Hawaii, or Massachusetts, here are some ways you can get quality car insurance coverage with a bad credit score:
- Shop around before you buy: Some companies only accept Excellent credit. If your credit is Good, Average, or especially Poor, shop around and compare quotes. Some local insurance companies don’t care about credit scores and would be happy to cover you.
- Ask your provider if they offer telematics: Once only available at hip insurance startups, telematics is coming to big national providers. Ask your agent if you qualify for this program and get a quote based on your actual driving habits.
- Look for non-standard insurance companies: Companies like The General are willing to take on customers that other companies consider high-risk. If your credit is poor and you have a history of claims or violations, these companies can give you the coverage you need.
- Get new auto quotes frequently: Some auto policies come with a 6-month term instead of a 1-year term. If you can improve your credit, get a new quote ASAP to find out how much you can lower your rate!
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