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You expect a lender to check your credit score when you apply for a mortgage or auto loan, but what about when you apply for auto insurance? It comes as a surprise to many that buying car insurance with poor credit is far more expensive than expected. Here, we'll look at auto insurance companies that don't hit drivers with high rates, even if their credit scores are low. We'll also help drivers find ways to lower their auto insurance premiums, regardless of poor credit. Each of our top picks offer a rate lower than the average national rate.
Of the national insurers we checked, Geico offers the lowest rates for drivers with less-than-perfect credit. With an average monthly rate of $194, it may not be cheap, but it sure beats the competition. Geico is also known for high customer service ratings, ample discounts, and an easy application. It's tough to beat Geico when it comes to cheap car insurance, even for drivers trying to get car insurance with poor credit.
With an average of $224 per month, Nationwide's insurance rate is slightly higher than Geico's, but Nationwide has a lot to offer. Its comprehensive list of coverage options makes it possible to create a personalized policy. The company also provides many discount options, high claim satisfaction, and rewards for safe drivers.
With an average car insurance rate of $285 per month for drivers with poor credit, Farmers is undoubtedly not the cheapest. What they do offer is an extensive network of agents and an extensive menu of insurance coverage options.
The reality that State Farm has been around since before any of us were born is comforting. Of even greater comfort is the fact that A.M. Best gives State Farm its highest possible rating of AA++ for financial security. While their average monthly rate for a driver with a poor credit score is $281, it's safe to say State Farm will be there if anything goes wrong.
Coming in with an average rate of $259, Progressive offers a unique "Snapshot" option that allows motorists to download a mobile app that tracks their driving habits and reduces their rates if they're safe drivers. It also has a Name Your Price tool that allows drivers to customize coverage to fit their budget.
Finally, we have USAA, designed for military members and their families. With a great monthly rate of $213 for drivers with less-than-ideal credit, the company offers perks like accident forgiveness and a flexible payment plan.
When it comes to insurance, it boils down to risks. Insurance companies consider several things to determine how much risk is involved in insuring a particular driver. For example, they look at a person's driving record to see if there are any speeding tickets, accidents, or other indications of risky driving habits. They look at the number of claims a driver has on their record. And they also look at a driver's FICO® Score. The less risky a driver is, the more affordable auto insurance they’ll likely receive.
A driver's FICO® Score does not indicate how well a person drives. Still, it gives insurers an idea of how long the driver has had access to credit, how well they pay their monthly bills, if they have any accounts in collections, and how frequently they take out new credit.
Why does it matter? Insurance companies check credit scores because, according to research, drivers with low credit scores are more likely to file an insurance claim, and those with higher scores tend to get into fewer accidents.
It's a controversial premise. In fact, it's so contentious that the Federal Trade Commission (FTC) got involved by conducting its own independent study. The FTC study showed precisely the same thing as the previous studies. Credit is a good predictor of how risky a particular driver will be and whether they will end up making a claim.
Still, not every state allows insurers to use credit scores when determining a driver's premium. For example, California, Hawaii, Michigan, Massachusetts, and Washington have banned the practice.
The cost of poor credit auto insurance depends on the state and the auto insurance company. For example, in Florida, the average price will be 58% higher than a policy written for a driver with excellent credit. In Louisiana, it's 113%. In Kentucky, a driver will pay an average of 134% more for bad credit car insurance. And in New York, there's an average 167% rate hike.
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Average Car Insurance
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|Average Car Insurance with Excellent Credit|
Landing inexpensive car insurance is not impossible, even for drivers with a bad credit score. If current coverage is too expensive, here are some tips to lower those rates:
No two insurance companies are precisely alike, meaning they have different rate structures. Shop around for the best price.
Even if a driver has been with the same insurance carrier for years, it's important to conduct an annual insurance check-up to ensure they still have the best deal available. A yearly check-up involves checking with several insurance companies and comparing quotes. There's no reason for drivers to worry about dinging their credit score as they shop for new insurance because auto insurers tend to conduct a "soft" credit check. A soft credit check has no impact on a driver's FICO® Score.
Rather than paying for a traditional policy, look for an insurer offering a usage-based program. Usage-based programs work by tracking a person's driving habits through an app and rewarding them with a lower rate for safe driving. A cautious driver may be able to snag a lower rate, no matter what their credit score may be.
Pay-per-mile insurance makes sense for a driver who doesn't hit the open road much. Why pay for coverage they don't need? Again, using an app, an insurance provider can tell the average number of miles driven and provides coverage for those miles only. For an infrequent driver, pay-per-mile can save big.
Almost every auto insurance company offers a menu of discounts. These discounts include things like car safety features, policy bundling, and safe driver discounts. Generally, at least one (or more) discounts are available for every driver who searches for them.
Working to improve your credit score is not typically fast or easy, but it is worth it. Best of all, it's a step-by-step process that anyone can follow. With time and patience, a driver can find themselves with greater insurance options due to a new and improved FICO® Score.
There's no denying that it's frustrating to pay more for auto insurance, but it does not have to be permanent. Once a driver's credit rating has time to improve, insurance companies will compete to provide affordable auto insurance. If a low credit score equals a higher premium, a good credit score leads to lower premiums.
|Offer||Best For||Next Steps|
|Great For: Best for Forgiving Rates|
|Great For: Best for Customization|
|Great For: Best for Variety of Coverage Options|
|Great For: Best for Customer Service|
|Great For: Best for Unique Pricing|
|Great For: Best for Military Families|
We did not find an insurance company that does not check scores for a traditional policy (in states where it's allowed), but we did find that insurers are far less likely to check credit scores when the driver purchases a usage-based or pay-per-mile policy.
Not automatically. When policy renewal time rolls around, it's time to speak with the current insurer about snagging a lower rate. No matter what the insurer says, it can pay to shop around with other insurance companies.
Yes, if a driver lives in a state that allows for the practice, it's safe to expect a car insurance company to run credit and gather the driver's FICO® Score.
Our Insurance Expert
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