California, Hawaii, and Massachusetts have banned the practice of using credit scores to determine insurance risk. If you live in those 3 states, you can get car insurance without a credit check! Unfortunately, if you don’t live in one of these states, your credit score will probably play a part in your monthly insurance premium.
Can I Get Auto Insurance With a Bad Credit Score?
There are more important contributing factors to your monthly premium than your credit score, such as your claims history and the current value of your daily driving vehicle. Credit history can reveal historic tendencies and traits that insurance companies consider to be risky, but it’s still possible to find car insurance coverage with a low credit score, especially if you have a clean driving record.
Why Do Auto Insurance Companies Require Credit Checks?
When you make contact with an auto insurance company, the first thing that agent must do is perform a risk evaluation. Your credit score can affect your considered risk level. A low credit score can also drive away top auto insurers who are trying to focus their efforts on the top 25% of safe drivers in order to minimize their exposure to risk. This means that a poor credit score is able to penetrate parts of your life that you may not have imagined before.
Studies have shown that the difference annually that an insured individual will pay if they have good credit versus a poor FICO credit score of 579 or lower can be several thousands of dollars over twelve months! States like Michigan have the most dramatic increase in auto insurance premiums as a result of low credit scores. Monthly insurance payments in these states could increase by as much as $400 which could even surpass your car payment.
Why Does a Low Credit Score Increase Your Risk to Insurance Companies?
A credit score is often used as a way to estimate someone’s financial security. Auto Insurance companies believe that drivers with a low credit score are a greater risk for 2 main reasons:
Reason 1 – Frequent Claims or Non-Payment
Top insurance companies such as Farmers, Allstate, Travelers, and AAA believe that drivers with a lower credit score are more likely to file frequent small claims for minor incidents. Their reasoning is that these drivers will have less cash on hand to make repairs out-of-pocket. Since they expect drivers with lower scores to use their service more, they raise premiums accordingly. They may also worry about the ability of these drivers to reliably pay insurance premiums on time. In the case of financial difficulties, paying insurance premiums may not be the top priority.
Reason 2 – Fraud
Low credit scores have often been proven to be directly correlated with a driver’s likelihood to file for a claim against their vehicle. While highly illegal, filing an insurance claim under false pretenses could be a short-sighted ploy to obtain some much-needed cash in their time of need.
Will Credit Checks From Auto Insurance Quotes Hurt My Credit Score?
Being concerned about unneeded credit checks affecting your score is perfectly natural. The last thing you want to do when trying to improve your credit score is to deflate it with unneeded hits! Luckily most credit checks performed by auto insurance companies don’t affect your credit score negatively like applying for a credit card or car loan would.
- Soft Credit Checks: Credit checks for auto insurance purposes will typically be Soft Credit Checks. A soft credit check will appear on your credit report, they are often only visible to you.
- Hard Credit Checks: A loan office or credit card company performs something called a Hard Credit Check. This type of inquiry lowers your score and it’s usually only done when you’re opening a new loan or credit card. It’s more intense than just
There are a few guidelines you can follow to protect your credit score while searching for quotes:
- Always ask before giving permission to check your score: A hard credit inquiry can’t be done without your permission. If you’re on the phone with an auto insurance agent, and they ask to do a credit check, don’t just say yes. It’s important to specifically ask whether their quoting process involves a hard credit check that could affect your score.
- Providing your credit score is not a credit check: Voluntarily supplying your credit score will never count as a hard inquiry. You can also check your credit score yourself any time — without lowering it — through a number of websites.
How Can I Tell If My Credit Score Is Too Low to Save On Car Insurance?
Each auto insurance company has different standards for a “low” credit score. Some accept only Excellent credit, while others are happy to accept Good, or even Average credit scores. That’s why it’s important to compare car insurance quotes.
If your credit is considered Poor, you may have trouble finding cheap car insurance in your states. But don’t give up hope. Some “Non-Standard” auto insurance companies specialize in high-risk drivers and prefer customers with low credit scores.
No matter your credit score, always shop around to find the best rate.
If your credit score improves, get a new car insurance quote!
In the same way that auto insurance companies use credit checks to evaluate your potential for an accident, they can also use positive credit check results to reduce your monthly premiums!
If your agent lists a low credit score as a reason for increased monthly premiums, once your credit score has improved you should demand that they review your account again.
Will Lack of Credit History Increase My Car Insurance Premiums?
In addition to a low credit score, a lack of credit history is another indicator that insurance companies use to flag potentially risky clients. Studies show that members with little to no credit history have a tendency to pay up to 50% more for auto insurance compared to those with established credit scores. However, many of these are new drivers in their teens and twenties who have just passed their driving test, and this may be the real reason they’re paying more. If you are a new or inexperienced driver with an unestablished credit score, doing some research to find out which insurance companies place less value on credit standing will undoubtedly benefit you in the long run.
It does need to be said that the easiest way to begin establishing a credit score is to open a credit card with your local bank and begin practicing good financial habits. If opening a credit card is not an option, transferring a car loan into your name instead of your parents or even opening a department store credit card are great ways to get your foot into the door with low risk!
How to Get Auto Insurance Without Providing Your Credit Score
California, Hawaii, and Massachusetts have actually banned the practice of using credit scores to partially determine auto insurance rates. If you don’t live in one of these 3 states, telematics is another way to get an auto insurance quote without providing your credit score.
Telematics: Insurance Quotes Based On How You Drive
You can get a quote from an insurance company that uses telematics instead of standard risk assessment. These companies determine their risk assessment by evaluating your actual driving during a trial period, instead of using other factors to guess at how you’ll drive. These companies are ideal for young drivers with no credit history or older drivers with low credit scores.
How To Get Auto Insurance With A Low Credit Score
For most drivers, credit scores will play a part in monthly auto insurance premiums. If you’re worried that below-average credit will raise your rates, then give your agent a call and ask the critical questions! It’s never too late to shop around for a new policy or improve your credit score to show your insurance agent that you care.
If you don’t live in California, Hawaii, or Massachusetts, here are some ways you can get quality car insurance coverage with a bad credit score:
- Shop around before you buy: Some companies only accept Excellent credit. If your credit is Good, Average, or especially Poor, shop around and compare quotes. Some local insurance companies don’t really care about credit scores and would be happy to cover you.
- Ask your provider if they offer telematics: Once only available at hip insurance startups, telematics is coming to big national providers. Ask your agent if you qualify for this program and get a quote based on your actual driving habits.
- Look for companies that offer non-standard insurance: Companies like The General are willing to take on customers that other companies consider high-risk. If your credit is Poor and you have a history of claims or violations, these companies can give you the coverage you need.
- Get New Auto Quotes Frequently: Some auto policies come with a 6-month term instead of a 1-year term. If you’re able to improve your credit, get a new quote ASAP to find out how much you can lower your rate!