How Bad Credit Affects Car Insurance Rates.

Get your free
Insurance Quotes
You could save up to $47.75/month* on Auto Insurance

How Bad Credit Affects Car Insurance Rates.

This question actually has two answers, in that not every area allows the use of credit scores as a factor in determining car insurance rates. Car insurance providers use many variables for determining insurance prices, and many of them can’t be changed, like age, as an example. Credit scores have an effect on a lot of things, including whether you can get a loan or mortgage, and what the cost of your car loan will be. Getting credit cards with bad credit also has some negatives to it.

If your state allows credit to be a factor in car insurance rates, most states do, you can see an increase in your premiums when you renew if your score goes down. There are three states that do not let insurance companies use credit scores to help determine rates. These are California, Hawaii, and Massachusetts. All three of those states ban it.

The reason credit is a variable car insurance companies want to use is that people with low credit are more likely to file claims. Not only that but policyholders that pay their bills on time have less costly claims on average. This means that paying your bills on time can pay big dividends in numerous ways.

Overall, your credit rating can affect the amount you pay on your down payment for car insurance, and it can also influence your rates in general. On average, the difference between car insurance rates for people with good credit and car insurance rates for people with bad credit is 71%. Between good credit and fair credit, the difference is 18 percent.

Should credit scores affect insurance rates? It is a controversial topic and one that has started many heated discussions.

Does Bankruptcy Affect Your Car Insurance Rates?

Another question that has more than one answer, depending on your situation. If your credit is in the dumps already, and you file for bankruptcy, your credit might not go down all that much overall. In this case, your car insurance rate might not go up. Rate increases around this variable are dependent on changes in your credit score. A high score to a low score will see a lot of change, but a low score to a low score won’t see nearly as much, if any.

Another variable here is whether or not your car insurance company checks your score often. In many cases, if you are getting your car insurance bills paid on time every month, there is no reason for the car insurance company to check your credit at all. If they don’t know your credit score has changed, your rate won’t change.

An auto insurance provider might check your credit if you are changing companies though, so when you are shopping around, keep that in mind before you make the switch. If you file for bankruptcy, some car insurance services might not offer you an auto insurance policy.

All in all, your credit history is all about risk assessment, and auto insurance companies are all about analyzing that.

What Helps And Hurts Your Auto Insurance Score

In terms of credit, there are a few things that are looked at by car insurance companies. Past due accounts, late payments, the length of your credit history, and open credit account status.

Many other variables affect car insurance rates as well, including where you live, your driving record, the type of car you drive, the car insurance laws in your state, and others as well. Improving your credit score can also help you get better rates on car insurance; in some cases, the average price can decrease significantly.

With one of the highest car insurance rates in the country, Michigan can see prices for people averaging $2,368. With poor credit, those rates can be $6,300 or more. Drivers in Vermont can see an increase of 78% or more. In Texas, they can see a rise of 94% or more. These types of increases happen in most states.

How To Boost Your Car Insurance Score

Getting a better car insurance score can net you lower premiums, and paying less on car insurance for the same exact thing is a win in anyone’s book. Boosting your score means staying on top of things. Pay your bills on time, and keep your credit-related accounts in good standing. This includes bills, taxes, cell phone bills, utility bills, etc. Late payments are not good.

Keep your credit card balances low, and don’t max out your credit cards.

Tip: Avoid Opening Too Many Credit Accounts.

Maintain credit history. You have to establish this to do it. Little or no credit history hurts your score.

Pay attention to your credit report. Make sure it is accurate, and fix errors that are made on it. Remember, you can get a free credit score report once a year in the US.

Final Notes (H2) If you are struggling with money and bills, reach out to someone and get help. It can be worth it to get professional advice. As always, shop around here for the best rates, and remember that improving your credit can save you big.