Is insurance more expensive with bad credit?

Editorial team Published on

Yes, bad credit generally increases auto insurance rates in most states.

How Credit Affects Insurance

  • Credit-Based Insurance Scores: Insurers use a specialized score based on your credit report history to predict how likely you are to file a claim.
  • Cost Difference: Drivers with poor credit can pay significantly more—sometimes double or more—for the same coverage compared to drivers with exceptional credit, even with a clean driving record.
  • State Bans: A few states—including California, Hawaii, Massachusetts, and Michigan—prohibit or strictly limit auto insurers from using credit scores to set pricing.
  • Soft Inquiries: When an insurance company checks your credit for a quote, it results in a "soft pull" that does not hurt your actual credit score.

Why is car insurance more expensive if you have bad credit?

Bad credit affects car insurance because companies use a specialized credit-based insurance score to predict how likely you are to file a claim.

Why Insurers Use Credit Data

  • Statistical Risk: Studies from groups like the National Association of Insurance Commissioners show a strong link between lower credit scores and a higher frequency of insurance claims.
  • Financial Stress: Insurers believe that people dealing with financial stress or poor credit may also cut corners on vehicle maintenance, drive more distracted, or file claims more often to recover money.
  • Price Matching: Companies use this data to set higher rates for high-risk drivers and lower rates for low-risk drivers.

What is a Credit-Based Insurance Score?

  • It is not your regular credit score, but it uses similar data from your credit report.
  • It looks at your payment history (late bills), amount of debt, length of credit history, and new credit activity.
  • It does not look at your race, gender, income, or marital status.
  • Checking your insurance rate uses a soft credit pull, which does not hurt your credit score.

Exceptions by State

  • A few states ban or limit the use of credit scores when setting auto insurance rates.
  • California, Hawaii, Massachusetts, and Michigan do not allow companies to use credit scores to price policies.

Is $300 a month too much for car insurance?

Yes, $300 a month for car insurance is higher than the national average of about $176 a month for full coverage, but it can be normal depending on your personal risk factors.

📊 Understanding Your Rate

  • National Average: Full coverage averages $176/month ($2,361/year); minimum coverage averages $54/month ($648/year).
  • When $300 is Normal: Common for young drivers, high-risk locations, or those with recent accidents.
  • When $300 is High: Unwarranted for drivers with clean records and standard vehicles in low-risk areas.

💡 Why Your Rate Might Be $300

  • 🚗 Vehicle Type: New, expensive, or frequently stolen cars cost more to insure.
  • 📍 Location: Urban areas or states with high litigation rates (like Louisiana or Florida) drive up prices.
  • 👤 Driver Profile: Drivers under 25, or anyone with speeding tickets, claims, or low credit scores, pay significantly higher premiums.
  • 💳 Payment Schedule: Paying monthly often incurs installment fees or hidden interest charges compared to paying in full every 6 months.

🛠️ Action Plan to Lower Your Bill

  • Shop Around: Get quotes from at least three different competing insurers or use an independent insurance broker.
  • Adjust Deductibles: Raise your comprehensive and collision deductibles from $500 to $1,000 if you have emergency savings.
  • Review Coverages: Drop unnecessary add-ons like roadside assistance or rental car coverage if you do not use them.

Does Geico go by credit score?

Yes, GEICO uses a credit-based insurance score to help determine your car insurance rates in states where it is allowed by law.

How GEICO Uses Credit Information

  • Different type of score: GEICO looks at a specialized insurance score based on your credit report, not a standard FICO score used by banks. This score predicts how likely you are to file a claim.
  • No impact on your credit: When GEICO checks your credit for a quote, it is a soft inquiry. This does not lower your credit score.
  • State restrictions: State laws regulate or ban this practice. GEICO does not use credit scores to set rates in states like California, Hawaii, Massachusetts, and Michigan, where it is prohibited by law.

What is the cheapest car insurance with bad credit?

The cheapest major car insurance companies for drivers with bad credit are GEICO and Travelers, though rates vary widely by state and personal driving history.

Cheapest National Providers

  • GEICO: Frequently offers the lowest average monthly rates for drivers with poor credit scores.
  • Travelers: Ranks as one of the most affordable large national carriers for full coverage if your credit is low.
  • USAA: Often the absolute cheapest option available, but strictly limited to military members, veterans, and their families.
  • Progressive & Nationwide: Both weigh credit history less heavily than other major insurers or offer competitive baseline pricing.

States That Ban Credit Scoring

If you live in California, Hawaii, Massachusetts, or Michigan, state law prohibits auto insurance companies from using your credit score to calculate your rates.

Companies That Do Not Check Credit

  • CURE: Avoids credit checks and is available in Michigan, New Jersey, and Pennsylvania.
  • Root Insurance & Dillo: Use telematics (driving behavior tracking) or local records instead of credit-based insurance scores in select states.

Tips to Lower Your Rate

  • Compare quotes: Get estimates from at least three different companies.
  • Use telematics: Opt into safe-driving apps like Progressive Snapshot or Nationwide SmartRide to shift focus away from your credit.
  • Bundle policies: Combine your auto insurance with renters or homeowners insurance.

How Bad Credit Costs You THOUSANDS in insurance, car payments, and more!! 🤯

9 related questions found

Which insurance companies do not check credit?

Most major insurance companies check your credit to calculate rates, but specific regional providers like CURE Auto Insurance and Dillo Insurance do not.

Companies That Skip Credit Checks

  • CURE Auto Insurance: Available in New Jersey, Pennsylvania, and Michigan. It bases rates purely on your driving record rather than your credit or occupation scores.
  • Dillo Insurance: Available exclusively in Texas.
  • Glacier Auto Insurance: Available in select areas like Pennsylvania and Delaware.

States That Ban Credit Checks

If you live in certain states, state law completely prohibits auto insurance companies from using your credit score or credit history to calculate your rates:

  • California
  • Hawaii
  • Massachusetts
  • Michigan
  • Maryland, Oregon, and Utah also enforce heavy partial restrictions or bans on how credit can be used.

Important Details to Know

  • Soft Inquiries Only: When major insurers (like GEICO, Progressive, or State Farm) check your credit for a quote, they perform a soft pull. This does not harm your credit score.
  • Alternative Options: If you have poor credit and live outside these specific states or coverage zones, look into usage-based or telematics insurance (like Nationwide's SmartRide), which bases your rate on your actual driving habits rather than your financial history.

Is 550 a poor credit score?

A credit score of 550 is considered "very poor" or "poor" on the standard FICO and VantageScore ranges of 300 to 850.

What a 550 Score Means

  • High Risk for Lenders: Lenders view this score as a sign of high financial risk, often caused by late payments, high credit utilization, defaults, or bankruptcy.
  • Limited Approvals: Getting approved for traditional credit cards, auto loans, or mortgages is difficult.
  • Higher Costs: If you do qualify for loans or subprime products, you will likely face much higher interest rates and strict terms.

How to Improve It

  • Pay on Time: Always make your loan and credit card payments by the due date.
  • Lower Balances: Keep your credit utilization below 30% of your total credit limit.
  • Alternative Options: Consider a secured credit card or a credit-builder loan to start adding positive payment history.

Is $200 a month a lot for car insurance?

Paying $200 a month for car insurance is right around the national average for a full-coverage policy, but whether it is "a lot" depends heavily on your specific coverage and personal risk factors.

When $200 a Month is Normal

  • Full Coverage: The national average for full coverage (which includes liability, collision, and comprehensive) is about $195 to $209 per month.
  • Higher-Risk Profiles: If you are a young or newly licensed driver, have a recent ticket or accident on your record, or live in a high-cost state like Florida or California, $200 is very common or even low.
  • Newer or Expensive Vehicles: Insuring a brand-new or financed car costs more because replacement and repair parts are expensive.

When $200 a Month is Too High

  • Minimum Coverage: If you only carry basic state-minimum liability insurance, $200 a month is expensive. Minimum coverage normally averages around $55 to $64 a month.
  • Clean Record and Older Car: If you have a clean driving record, drive an older car that is paid off, and only have basic protection, you are likely overpaying.

Many users on Facebook Groups discuss paying well over $200 depending on their location, while others find ways to lower bills by shopping around.

What not to tell your insurance company?

Never admit fault, apologize, or downplay your injuries when speaking to an insurance adjuster after an accident.

Statements to Avoid

  • "I'm sorry" or "It was my fault": Insurers treat apologies as a legal admission of liability, which can reduce or eliminate your compensation.
  • "I'm fine" or "I'm not hurt": Adrenaline can mask severe conditions like internal bleeding or traumatic brain injuries that appear days later. Early statements that you are fine are used to deny later claims.
  • Guesses or speculation: Never estimate speeds, distances, or timing. Stick strictly to objective facts you know for certain.
  • Recorded statements: You can decline requests for a recorded interview until you consult legal counsel, as adjusters use these recordings to trap you in inconsistencies.

Safe Communication Guidelines

  • Provide only basic facts like the date, time, location, and your contact or policy details.
  • Refer the adjuster to a qualified Car Accident Lawyer to manage further discussions and protect your rights.

Is it better to have a $500 deductible or $1000?

A $1,000 deductible is better if you want lower monthly payments and have enough savings to pay the higher amount during a claim, while a $500 deductible is better if you prefer lower out-of-pocket costs when an accident happens.

Comparison of Deductibles

  • $500 Deductible
    • Monthly premium: Higher.
    • Out-of-pocket cost during a claim: Lower ($500).
    • Best for: Drivers with limited emergency savings, those who feel uneasy paying a large cash sum unexpectedly, or people with higher driving risk.
  • $1,000 Deductible
    • Monthly premium: Lower.
    • Out-of-pocket cost during a claim: Higher ($1,000).
    • Best for: Drivers with a strong emergency fund, safe drivers who rarely file claims, and those who want to save money on yearly insurance costs.

How to Decide

Read guidance from Tapley Agency or review InsuraMatch to weigh your personal budget. Ask yourself these questions:

  • Can you afford $1,000 right now? Never pick a $1,000 deductible if paying it on short notice would cause financial hardship.
  • What is your car worth? If your car is older and only worth a few thousand dollars, a high deductible might not make financial sense.
  • How often do you drive? If you have a clean record and rarely drive, a $1,000 deductible helps you keep more cash in your pocket.