How Does Credit Affect Car Insurance Rates?
In most states, insurers use credit-based insurance scores to help determine your premium. These scores — developed from your credit report — predict the likelihood you'll file a claim.
Studies by the Federal Trade Commission and insurance industry groups have consistently found a correlation between credit history and claims frequency. Drivers with poor credit file more claims on average than those with excellent credit.
The penalty is significant: Drivers with poor credit pay an average of 76% more for car insurance than drivers with excellent credit. In some states, the difference exceeds 100%.
For example, a driver with excellent credit might pay $1,500/year for full coverage, while an otherwise identical driver with poor credit pays $2,640/year — a difference of $1,140 annually.
Credit-based insurance score vs. credit score: Insurers don't use your standard FICO credit score. They use a proprietary insurance score (like LexisNexis Attract or TransUnion TrueRisk) based on your credit report but weighted differently. Payment history, outstanding debt, length of credit history, and inquiries all factor in.
Which States Ban Credit-Based Insurance Pricing?
Four states prohibit or severely restrict the use of credit scores in car insurance pricing:
- California: Complete ban on using credit for auto insurance pricing
- Hawaii: Complete ban on using credit for auto insurance pricing
- Massachusetts: Complete ban on using credit for auto insurance pricing
- Michigan: Severely restricted; credit cannot be the sole reason for rate increases
Maryland also limits how much insurers can penalize drivers based on credit. If you live in one of these states, your credit score will have little to no impact on your car insurance rate.
In all other states, insurers can and do use credit-based insurance scores — and the impact is substantial.
Moving tip: If you have poor credit and are considering a move, California, Hawaii, or Massachusetts will offer significantly lower car insurance rates (all else being equal) because insurers there cannot use credit scores.
Car Insurance Costs by Credit Tier
Here's how average car insurance costs vary by credit tier for a 40-year-old driver with a clean record and full coverage:
Excellent credit (750+): ~$1,500/year
Good credit (700–749): ~$1,750/year (17% more)
Fair credit (650–699): ~$2,100/year (40% more)
Poor credit (below 650): ~$2,640/year (76% more)
Very poor credit (below 550): ~$3,000–$3,500/year (100%+ more)
These are national averages. The credit penalty varies significantly by state and insurer. In Georgia and Texas, for example, poor credit can more than double your rate. In Michigan and California, it has little to no effect.
Cost comparison: A driver with poor credit and a clean driving record often pays more than a driver with excellent credit and one at-fault accident. In many states, credit is the single most influential rating factor.
Which Insurers Are Best for Drivers with Bad Credit?
Not all insurers weight credit equally. Some carriers are far more forgiving of poor credit than others. Here are insurers that tend to offer competitive rates for drivers with bad credit:
Geico: Often one of the most affordable options for drivers with poor credit. Geico weights driving record and other factors more heavily than credit in many states.
Progressive: Generally competitive for high-risk drivers, including those with poor credit. Offers name-your-price tool that can help you find coverage within your budget.
State Farm: While not the cheapest for poor credit, State Farm's rates are often more stable and predictable. They may be competitive in your state.
Nationwide: Offers accident forgiveness and other loyalty benefits that can offset credit penalties over time.
Regional carriers: Companies like Erie, Auto-Owners, Country Financial, and regional mutuals sometimes weigh credit less heavily than national carriers.
- Geico (often most affordable for poor credit)
- Progressive (competitive for high-risk profiles)
- State Farm (stable rates)
- Nationwide (loyalty benefits)
- Regional carriers (Erie, Auto-Owners, etc.)
Shopping tip: The only way to know which insurer will offer you the best rate is to compare quotes. Get at least 3–5 quotes from a mix of national and regional carriers.
How to Reduce Car Insurance Costs with Bad Credit
Even with poor credit, there are strategies to lower your premiums:
Shop multiple insurers — this is the most important step. Rates for drivers with poor credit vary by 50–100% or more between carriers. Compare at least 3–5 quotes.
Bundle home and auto insurance: Multi-policy discounts (10–25%) apply regardless of your credit score.
Raise your deductibles: Increasing your collision and comprehensive deductibles from $500 to $1,000 can reduce premiums by 15–25%.
Enroll in usage-based insurance: Telematics programs (like Progressive Snapshot or State Farm Drive Safe & Save) reward safe driving and can offset credit penalties.
Complete a defensive driving course: Many insurers offer 5–10% discounts for approved courses.
Drop unnecessary coverage: If your car is older (worth less than $3,000–$4,000), consider dropping collision and comprehensive.
Pay in full: Paying your 6-month or annual premium upfront (rather than monthly) often earns a 5–10% discount.
- Compare 3–5 quotes from different insurers
- Bundle home/renters and auto insurance
- Raise deductibles to $1,000 or higher
- Enroll in telematics/usage-based insurance
- Complete a defensive driving course
- Drop coverage on older vehicles
- Pay premiums in full (not monthly)
How to Improve Your Credit (and Lower Your Insurance)
Improving your credit score will gradually lower your car insurance premiums. Most insurers re-check your credit at every renewal (every 6 or 12 months), so rate reductions happen over time as your score improves.
Pay all bills on time: Payment history is the single biggest factor in both credit scores and insurance scores. Set up autopay for all bills.
Reduce credit card balances: High credit utilization (using a large percentage of your available credit) hurts your score. Aim to use less than 30% of your limits.
Don't close old accounts: Length of credit history matters. Keep old credit cards open, even if you don't use them.
Dispute errors on your credit report: Get free credit reports from AnnualCreditReport.com and dispute any inaccuracies. Errors can artificially lower your score.
Avoid new credit inquiries: Hard inquiries (from applying for new credit) temporarily lower your score. Limit applications to essentials.
Consider a secured credit card: If you have very poor credit or no credit history, a secured card can help you build positive payment history.
Timeline: Credit improvements take time. Expect 6–12 months of consistent positive behavior before seeing meaningful score increases — and another 6–12 months before those improvements fully reflect in your insurance rate.
Some insurers weigh credit less heavily. Find the ones that offer you the best rate.
Get Personalized QuotesNo Credit History vs. Bad Credit
Insurers treat drivers with no credit history (thin file) differently than drivers with poor credit (low score due to negative marks).
No credit: If you're new to the U.S., recently turned 18, or have never used credit, you may have no credit history. Insurers will typically assign you a "neutral" score — slightly higher than excellent credit, but far better than poor credit.
Bad credit: If you have a credit history with late payments, collections, bankruptcies, or high utilization, you'll be scored as high-risk and pay significantly more.
If you have no credit, your goal should be to build credit rather than avoid it. A positive credit history will lower your car insurance rate (and help with mortgages, loans, and other financial products).
Common Mistakes to Avoid
Only getting one quote: Rates for drivers with poor credit vary more than for any other risk factor. Always compare multiple carriers.
Assuming your rate is fixed: As your credit improves, your rate should drop. Re-shop every 6–12 months to capture those improvements.
Ignoring credit entirely: Working on your credit will save you money on car insurance, mortgages, and more. It's worth the effort.
Not checking for errors on your credit report: Errors are common and can artificially lower your score. Dispute inaccuracies immediately.
Letting your policy lapse: A coverage gap will raise your rates even more. Maintain continuous coverage even if it means higher deductibles or lower limits.
Frequently Asked Questions
On average, drivers with poor credit pay 76% more for car insurance than those with excellent credit. In some states, the penalty can exceed 100%. For example, a driver with excellent credit paying $1,500/year might see that rise to $2,640/year with poor credit.
California, Hawaii, Massachusetts, and Michigan ban or severely restrict the use of credit scores in car insurance pricing. Maryland also limits credit's impact. In these states, your credit score has little to no effect on your car insurance rate.
Most major insurers use credit-based insurance scores in states where it's allowed. However, the weight they give credit varies significantly. Some insurers (like Geico and Progressive) are more forgiving of poor credit than others.
Yes. Insurers treat no credit (thin file) differently than bad credit. You may pay slightly more than someone with excellent credit, but far less than someone with poor credit. If you have no credit, focus on building positive credit history.
Yes. As your credit score improves, your insurance-based credit score improves too. Most insurers re-check your credit at renewal, so rate reductions happen gradually over time — typically every 6–12 months.
Geico, Progressive, State Farm, and Nationwide tend to offer competitive rates for drivers with poor credit. Regional carriers like Erie and Auto-Owners may also be more forgiving. The only way to know for sure is to compare quotes from multiple insurers.