Find Cheap Auto Insurance Quotes in Your Area
We conducted a survey of insurance quotes and found that, on average, GEICO offers the best car insurance rates for drivers with bad credit. GEICO's auto insurance quotes for drivers with a poor credit rating (below a 630 FICO score) were 27% less than the average across the companies we considered. Low insurance rates can also be found with Progressive, which offers rates 10% lower than the mean.
Cheapest Car Insurance Companies for Drivers with Bad Credit
GEICO's average monthly car insurance rate of $204 for drivers with poor credit was the cheapest among the insurers we gathered quotes from. Considering that we found the average cost of car insurance for drivers with bad credit to be $281 per month, choosing GEICO represents a savings of $77 per month. Furthermore, individuals with bad credit who choose GEICO could save as much as $1,720 per year if they switch from the most expensive insurer in our survey: Allstate.
Although GEICO's rates were the cheapest for drivers with bad credit, rates can vary based on a variety of factors, including your location, and the best way to get the cheapest auto insurance rates is to compare quotes from a number of companies. In Atlanta, for example, GEICO actually provided the most expensive quote for a driver with poor credit, and the cheapest rate was offered by State Farm.
Why Car Insurance Is More Expensive for Drivers With Bad Credit
Insurers charge more for drivers with low credit scores because there is a strong correlation between bad credit and an increased likelihood of filing an insurance claim. Drivers who file a claim cost insurers money, either because the driver is at fault in an accident or because of a loss covered by comprehensive or collision insurance. And since insurers increase rates for customers they expect will have higher insurance payouts, drivers with poor credit end up with higher rates than those with excellent credit.
Drivers with no credit history are treated similarly to drivers with bad credit scores, and they generally will have higher auto insurance costs. To mitigate risk, insurers will usually assume that individuals with no credit are as risky to insure as those with bad credit histories.
Some have argued that using credit scores to set insurance rates unfairly restricts access to affordable insurance policies for minorities and those with low incomes. This has led to restrictions on using credit histories when setting insurance rates. There are three states in which auto insurance companies are required to provide noncredit-based car insurance:
Which Auto Insurance Companies Don't Check Credit Scores
Often, auto insurance companies that don't check your credit are nonstandard insurers that specialize in offering policies to high-risk drivers. However, as approximately 95% of auto insurers use credit scores when setting auto insurance rates when permitted to by law (according to FICO), it may be very difficult to find an insurer that doesn't check your credit.
Some examples of nonstandard auto insurers that don't check your credit score include Dillo Insurance and Cure Insurance. However, these insurers are relatively limited in the areas they service. Dillo only offers insurance to Texas drivers, and CURE only offers insurance in New Jersey and Pennsylvania.
If you are a driver with bad credit, it may seem like the best option is finding an insurer that doesn't check credit. However, this isn't necessarily the best way to get to get cheapest car insurance rates. Insurers that don't check your credit usually cater specifically to high-risk drivers and may assume you will be expensive to insure, even without considering your credit score. Since insurance companies have different ways to assess risk when setting rates, the best way to get cheap insurance with bad credit is to gather quotes from a variety of insurers. The cheapest option may not be the company that doesn't check your credit, but the one that penalizes you the least for your credit history.
It's also worth mentioning that getting car insurance quotes does not lower your credit score. When an auto insurance company checks your credit score, it is considered a soft pull—as opposed to a hard pull—on your credit. Soft pulls do not have any impact on your credit score, so there is no harm to getting quotes from multiple companies when shopping for insurance.
How to Improve Your Credit Score
Your credit score helps lenders determine how likely you are to repay debt. There are a number of ways you can build and improve your credit—generally by making responsible financial decisions. Factors that make up your credit score include:
- Types of credit
- Credit inquiries
- Credit history
- Debt burden
- Payment history
Make on-time payments: Making your credit payments on time is one of the best ways to improve your credit, as payment history is the biggest factor in your credit history. It accounts for 35% of your FICO score.
Maintain a low credit utilization ratio: The ratio of the credit you use compared to the credit that is available to you is known as your credit utilization ratio. Maintaining a ratio below 30% is a great way to improve your credit rating, as credit utilization accounts for 30% of your credit score. For example, if you have a credit card with $1,000 of available credit, you want to maintain a balance of no more than $300.
Most insurance companies do not report to the credit bureaus, so typically you cannot improve your credit by making car insurance payments. However, if you continually miss insurance payments, your insurer could—in the process of seeking repayment—report your delinquency to the credit bureaus, which would hurt your credit score.
How to Start Building Credit
To establish a credit history, you'll need to start by opening lines of credit. This may be difficult, though, as your options will be limited because of your lack of prior credit accounts. Luckily, there are a number of credit-building options available to consumers with no credit.
- Apply for a secured credit card: Secured cards are available to consumers with no or poor credit, and they require a security deposit of around $200 to get started.
- Become an authorized user: Asking a relative or close friend to add you as an authorized user on their credit card account is a quick way to start your credit history, even if you have no intention of using the card.
In addition to the examples provided above, opening other lines of credit when applicable can help you build a strong credit report, as diversity in your credit portfolio helps improve your score.