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Car Insurance With Bad Credit: How to Pay Less

Many drivers are surprised to learn that their credit history can affect what they pay for car insurance. It seems unrelated, after all. A late credit card payment is not a traffic violation. Yet in most states, insurers use credit information as one of the factors that set your premium, and if your credit is damaged, the quotes you see can be noticeably higher than a friend with a similar driving record.

The good news is that bad credit does not stop you from buying car insurance, and it is not a permanent sentence. This guide explains how the system works, which states limit it, what a poor score typically costs, and the practical steps that can bring your price down while you rebuild.

Why insurers look at credit at all

Insurance companies price risk, and they have found a statistical link between credit behavior and the likelihood of filing claims. Insurers say it is one of the better predictors available. Consumer groups argue it penalizes people for financial hardship that has nothing to do with how they drive. Whichever view you take, the practice is legal in most of the country, and the industry estimates that around 95% of insurers use credit information where it is allowed.

The score they use is not the same one you see on a credit app. It is called a credit-based insurance score, and it is built from your credit report using a different formula. According to the National Association of Insurance Commissioners, the factors commonly include:

Your payment history, including late or missed payments.
How much debt you carry compared with your available credit.
The length of your credit history.
How often you apply for new credit.
The mix of credit types you use, such as cards and loans.

Things that are not part of the score include your income, your age, your race or where you live. A short or thin credit history, many recent applications, collections or a past bankruptcy can all push the score down.

How much more will bad credit cost?

The honest answer is that it depends on the state and the company, but the effect can be large. One analysis found drivers with poor credit paid about 40% more than comparable drivers, and in some states the gap is far wider. A report on Iowa, for instance, found that drivers with poor credit pay about 140% more than those with excellent credit. In other places the difference is much smaller, and some insurers weight credit less than others.

Because the penalty varies so much from company to company, shopping around is the single most effective response. A company that punishes a low score heavily may be several hundred dollars more expensive than one that does not, and you will not know which is which until you compare quotes.

States that limit credit in car insurance pricing

A handful of states restrict how credit can be used. California, Hawaii and Massachusetts do not allow insurers to use credit information to set auto rates. Michigan also bars the use of credit in pricing, although the details differ from the first three. Several other states, including Maryland, Oregon and Utah, allow credit to be used in some ways but limit it. For example, some prohibit using credit as the reason to cancel or refuse to renew an existing policy. Washington tried a broader restriction in 2021, but a court overturned it.

These laws change, and states keep debating new ones, so check your state insurance department’s website for the current rule. If you live in a state with a ban, your driving record, location and vehicle matter far more than your credit.

Can an insurer deny you because of credit?

In most states an insurer cannot rely on credit alone to deny, cancel or refuse to renew your policy. It has to consider other factors. In practice, though, a low score can still lead to a higher price or a decision to place you with a different company in the same group. If you are declined, ask the insurer for the specific reason. Under federal rules, if credit information played a part in an adverse decision, you are entitled to a notice that says so and tells you which agency supplied the report.

Steps that can lower your premium

Compare quotes from many companies. Ask each one for the same coverage limits and deductibles. Include smaller and regional insurers, and non-standard carriers if the big names are too high. Our page on non-standard auto insurance explains when that route makes sense.
Check your credit report for errors. You can get free reports from the three major bureaus through AnnualCreditReport.com. A wrong late payment or an account that is not yours can drag a score down. Dispute anything inaccurate in writing.
Ask for a re-rating at renewal. If your credit has improved since you bought the policy, call and ask the insurer to re-run your score. Many do not do this automatically.
Look at telematics or usage-based programs. These price you on how you actually drive, which can offset a weak credit score. See pay-per-mile car insurance if you drive little.
Raise your deductible. A higher deductible lowers your premium, as long as you can afford it after an accident. Our blog explains how to choose a deductible.
Stack discounts. Bundling, paperless billing, safe driver, good student and vehicle safety discounts all still apply. See our guide to auto insurance discounts.
Ask about extraordinary life events. Some states require insurers to make an exception, or to rescore you, when a score was damaged by a medical emergency, a job loss, a divorce or a natural disaster. Ask what the company allows.

Paying when money is tight

Drivers with poor credit are often the same ones watching every dollar, so the payment plan matters almost as much as the price. Some insurers allow a very small first payment, and a few advertise coverage with no deposit. The cost of that convenience is usually a monthly fee or a slightly higher total. Paying the full six-month term upfront is generally cheapest if you can manage it, and a moderate deposit followed by monthly payments often costs less than a no-deposit plan. Our no down payment guide and no money down guide walk through the trade-offs in detail.

Whatever plan you pick, set up automatic payments or reminders. A missed payment can end a policy, and a cancellation for non-payment will push your next quote higher. If it has already happened, read car insurance after a cancellation for non-payment for how to start again.

What not to do

Do not drop coverage to save money. A lapse costs more in the long run, and driving uninsured carries penalties in nearly every state.
Do not buy a policy only because it is the cheapest advertised price. Check the liability limits, because low prices can come from very low coverage.
Do not open several new credit cards just to improve your mix. New applications can lower your score in the short term.
Do not trust anyone who promises to “repair” your credit overnight for a fee.

How to improve your score so insurance gets cheaper

Because the score is built from the same data as your normal credit score, the same habits help. Pay every bill on time, which is the biggest factor. Keep credit card balances well below their limits. Avoid unnecessary new accounts. Leave old accounts open where possible so your history stays long. Improvement takes months, not days, but insurers rescore at renewal, so the savings show up on the next term. The longer your record of on-time payments, the more favorable your insurance score becomes.

Start by seeing real numbers

You do not need perfect credit to find a fair price on car insurance. Get a free quote and compare offers side by side, so you can see which companies treat your credit most gently.