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Bad credit can cause issues in many areas, including auto insurance. Across many states, motorists with poor credit can expect to pay more for vehicle insurance — often much more than those with good credit. Read on to find out everything you need to know about credit score and car insurance, including how to get cheap car insurance for bad credit.
Why Does Credit Score Impact Insurance Rates?
Your credit rating might affect your insurance price for a variety of reasons. According to a study by the Federal Trade Commission, a driver’s credit score correlates with the frequency and expense of claims, causing insurance firms to classify those with poor credit scores as riskier to insure. Statistically speaking, the worse a driver’s credit score is, the more likely they are to file a claim. A higher credit score means you’re more likely to pay your bills on time, which means you’re less likely to skip payments or commit insurance fraud.
Insurance carriers also realize that credit ratings and earnings tend to rise and fall in lockstep, so having a higher credit score renders you more likely to pay for minor damages out of pocket instead of making a claim. As a result, in all but three states, individuals with low credit ratings will pay much higher premium costs. Insurance companies can’t rate their customers based on their creditworthiness in California, Massachusetts, or Hawaii.
How To Find Cheap Car Insurance With Bad Credit
Bad credit can and will affect your insurance premiums in all but a few jurisdictions. Just because you have a bad credit score doesn’t mean you can’t search around for the ideal car insurance rates, though. Here are a few steps you can take to ease the price hike and get lower rates:
- Change the type of insurance you have. Increasing your deductibles and eliminating redundant coverages are two excellent ways of cutting your insurance premiums.
- Get different estimates. Shifting to a different insurance company may lead to a lower premium. No matter what your credit rating is, evaluate quotes from several vehicle insurance companies to figure out the best deal.
- Consider your car. It’s possible that your credit score isn’t the sole element influencing your interest rate. A somewhat more expensive car can cost much more to insure, depending on the sort of protection you purchase. Lowering your premium may be as simple as finding a more economical car or settling your car loan. Also, your vehicle loses value quickly. In terms of cost savings, this means that the insurance coverage you had for your previous car may no longer be essential.
- Take advantage of special discounts. Customers of most insurance carriers can take advantage of several discounts to lower their insurance costs. Discounts for safe driving, company discounts, and loyalty discounts are all brilliant methods to cut your insurance expenses.
- Boost your credit score. Work on improving your credit score to lower your insurance premiums.
- Pay the entire annual premium in one go. Many insurance providers offer a discount if you pay your full premium upfront rather than in monthly installments.
- Determine your car’s value. If your car is worth less than $4,000, you could drop collision coverage and perhaps even comprehensive coverage. If your vehicle isn’t worth much, you may be overspending on protection that you don’t need.
- Be savvy with your claims. If you want to be savvy about your claims, you needn’t pursue one unless the damage to your car exceeds the amount that your rate would rise. When evaluating whether it’s prudent to make a claim, compare the projected cost of repairs plus your deductible to what you’ll pay if your carrier raises your premiums.
Suppose you’re a driver who’s in an at-fault accident, with the cost of the repairs set at $1,700. At-fault incidents increase vehicle insurance rates by $767 per year on average, and most insurers impose higher rates for at least three years after a citation or claim shows on your driving record. Thus, over the course of three years, a $767 rate hike will cost you more than $2,300. The average total cost of this claim would then be nearly $2,800 if you include a standard $500 deductible. Spending out-of-pocket for the $1,700 in repairs would save you over $1,100.
Proven Ways To Improve Your Credit Score
If you have a bad credit score, working to strengthen your credit score is the finest technique to lower your insurance premiums. There are several actions you can take to improve your bad credit score, including:
- Pay your debts on a monthly basis. Paying your entire bill on a monthly basis is one of the best techniques to lower your credit utilization. This can also save you money over the long term by preventing interest expenses.
- Contact credit bureaus. To improve your credit score, work with credit bureaus. Many credit bureaus will allow you to boost your credit score by including on-time rent and utility payments.
- Hold off on new accounts. Avoid opening new accounts until your finances are in order. Each application for more credit results in a hard review of your credit score, which lowers your credit score. If you want to improve your credit score, you may need to avoid opening new accounts to avoid hard queries.
- Analyze your credit report. You have the right to a free credit report once per year. It’s beneficial to take time to review the report to ensure that everything is in order. You can clean up your credit report and see an uptick in your credit rating if you find that a lender has erroneously listed you as late or if you have been the victim of identity theft.
Your credit score is just one component that factors into computing your insurance premiums. If you’re wondering about how auto insurance works and how it affects your charges, you should know that your postal code, age, and driving record all play a role in how you’re classified. Nonetheless, your credit score might have a significant impact on your monthly payment.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.
