Yes, car insurance is significantly more expensive with bad credit, often costing over 100% more than for drivers with excellent credit. Drivers with poor credit (below 580) pay an average of $2,729 to $4,745 annually, which is more than double the rates for those with exceptional credit ($1,308–$2,318), according to The Zebra and Bankrate.
Car insurance companies use credit-based insurance scores to set rates in every state except for California, Hawaii, Massachusetts and Michigan. According to our research, a low credit score raises the average annual premium by 86% for minimum coverage and by 47% for full coverage.
California
Insurance companies in California don't use credit-based scores or your credit history for underwriting or rating auto policies, or setting rates for homeowners insurance. As a result, your credit won't impact your ability to get or renew a policy, or how much you pay in premiums.
While major insurers including State Farm, GEICO, and Progressive use credit scores to determine rates, regional insurers CURE Auto Insurance (available in NJ, PA, MI) and Dillo Insurance (available in TX), do not. However, if you live in CA, HI, MA, or MI, laws prevent insurers from using credit to determine rates.
A history of insurance violations or lapses for non-payment will also make you a poor risk. You have a bad credit rating – Many insurers use credit information as a predictor of risk, as people who do not effectively manage their credit tend to make more claims.
Many auto and homeowner insurance companies look at consumer credit information to decide: Whether to issue or renew an insurance policy. How much premium to charge.
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
Key Things to Know About How State Farm Uses Your Credit Score. State Farm will assign you an auto insurance score, which is based on your credit history, just like your credit score.
Common Questions About Credit and Car Insurance (FAQ)
Studies have shown a strong correlation between credit history and risk, which is why many insurers include this factor when setting rates. It's just one of several elements used to determine your premium.
A $25,000 car loan payment varies significantly but generally falls from around $400 to over $700 monthly, depending on the loan term (3-7 years), interest rate (APR), and if you have a down payment, with shorter terms and higher rates meaning higher payments, while longer terms or good credit (lower rates) reduce monthly costs. For example, a 5-year loan might be about $494/month, but a 3-year loan could be over $770/month, even with similar rates.
After you pay off your debt, you may notice a drop to your credit scores. This happens because removing the debt affects certain factors affecting your credit score. These include your credit mix, your credit history or your credit utilization ratio. For example, paying off an auto loan can lower your credit scores.
It depends on how much income you have after your bills and expenses. As a rule of thumb, your car payment should not exceed 15% of your post-tax monthly pay. For example, if you make the U.S. median annual income of $62,1920 after taxes, you could shop for a car that costs up to $606 per month.
You should consider dropping full coverage when your car's value is low (maybe 10 times your annual premium), you have a clear title (no loan), and you can afford to pay for repairs or replacement out-of-pocket if needed, especially if you're driving less or have other vehicles. Dropping it saves money but adds risk, so balance your risk tolerance and budget; if you can't afford to replace the car if it's totaled, keep full coverage.
Here are the key factors that can void your car insurance:
Generally, Geico is cheaper than State Farm for overall average rates, especially for young drivers, teens, and those with good records, but State Farm can be less expensive for drivers with a recent accident, DUI, or low credit score, plus offers more personalized agent service. Your final cost depends heavily on your specific driving history, location, and coverage needs, so comparing quotes is essential.