Car Buying

Car Insurance Usually Costs More for Those With Bad Credit

RELATED READING
RESEARCH BY MAKE
Toyota cars, trucks and SUVs Ford cars, trucks and SUVs Honda cars, trucks and SUVs Chevrolet cars, trucks and SUVs Jeep cars, trucks and SUVs Nissan cars, trucks and SUVs Lexus cars, trucks and SUVs Volkswagen cars, trucks and SUVs BMW cars, trucks and SUVs
Acura cars, trucks and SUVs Alfa Romeo cars, trucks and SUVs AMC cars, trucks and SUVs Aston Martin cars, trucks and SUVs Audi cars, trucks and SUVs Bentley cars, trucks and SUVs BMW cars, trucks and SUVs Bugatti cars, trucks and SUVs Buick cars, trucks and SUVs Cadillac cars, trucks and SUVs Chevrolet cars, trucks and SUVs Chrysler cars, trucks and SUVs Daewoo cars, trucks and SUVs Datsun cars, trucks and SUVs DeLorean cars, trucks and SUVs Dodge cars, trucks and SUVs Eagle cars, trucks and SUVs Ferrari cars, trucks and SUVs FIAT cars, trucks and SUVs Fisker cars, trucks and SUVs Ford cars, trucks and SUVs Freightliner cars, trucks and SUVs Genesis cars, trucks and SUVs Geo cars, trucks and SUVs GMC cars, trucks and SUVs Honda cars, trucks and SUVs HUMMER cars, trucks and SUVs Hyundai cars, trucks and SUVs INFINITI cars, trucks and SUVs Isuzu cars, trucks and SUVs Jaguar cars, trucks and SUVs Jeep cars, trucks and SUVs Kia cars, trucks and SUVs Lamborghini cars, trucks and SUVs Land Rover cars, trucks and SUVs Lexus cars, trucks and SUVs Lincoln cars, trucks and SUVs Lotus cars, trucks and SUVs Maserati cars, trucks and SUVs Maybach cars, trucks and SUVs Mazda cars, trucks and SUVs McLaren cars, trucks and SUVs Mercedes-Benz cars, trucks and SUVs Mercury cars, trucks and SUVs MINI cars, trucks and SUVs Mitsubishi cars, trucks and SUVs Nissan cars, trucks and SUVs Oldsmobile cars, trucks and SUVs Plymouth cars, trucks and SUVs Pontiac cars, trucks and SUVs Porsche cars, trucks and SUVs RAM cars, trucks and SUVs Rolls-Royce cars, trucks and SUVs Saab cars, trucks and SUVs Saturn cars, trucks and SUVs Scion cars, trucks and SUVs smart cars, trucks and SUVs SRT cars, trucks and SUVs Subaru cars, trucks and SUVs Suzuki cars, trucks and SUVs Tesla cars, trucks and SUVs Toyota cars, trucks and SUVs Volkswagen cars, trucks and SUVs Volvo cars, trucks and SUVs Yugo cars, trucks and SUVs
RESEARCH BY STYLE
AWD/4WD
Commercial
Convertible
Coupe
Hatchback
Hybrid/Electric
Luxury
Sedan
SUV/Crossover
Truck
Van/Minivan
Wagon

author photo by Russ Heaps June 2015

Want to lower your car insurance premium? The key is to improve your credit score. That's the finding of a recent study by WalletHub, a personal finance site.

In all but three states (California, Massachusetts and Hawaii), bad credit often means paying more -- on average, about 49 percent more -- for your auto insurance. The other 47 states, as well as Washington, D.C., allow insurance providers to access the credit histories of people applying for car insurance and use that information when determining monthly premiums.

Why Your Credit Score Matters

There is a long-held belief among insurance providers that people with spotty credit histories have money problems and are more likely to file claims. Insurance companies aren't charities. They are in business to make a profit, and to accomplish that, they must take in more in premiums than they pay out in claims. In light of that, insurance companies tend to charge policy holders with lower credit scores more than those with spotless credit, just as they charge people with several accidents or speeding tickets more than those with a clean driving record.

How Much Can Premiums Differ?

Where you live can make a big difference in how much your credit affects the cost of your car insurance. Among the 47 states allowing insurance providers to access credit histories, they have the least impact in Connecticut, where someone with bad credit only pays about 15 percent more on average than someone with excellent credit. Michigan is the worst, where the difference is 115 percent.

These are the top-five states where credit scores have the highest impact:

  • Michigan -- 115 percent.
  • South Carolina -- 87 percent.
  • Maine -- 70 percent.
  • Pennsylvania -- 69 percent.
  • Virginia and New Jersey -- 68 percent.

Does It Vary by Insurance Company?

Some insurance providers assign more weight to credit history than others. Among the top five U.S. car insurers, bad credit will increase premium cost by 62 percent at Farmers Insurance -- the largest difference among the top five. The smallest fluctuation is 32 percent at GEICO.

Here's how the top five stack up:

  • Farmers Insurance -- 62 percent.
  • Progressive -- 60 percent.
  • State Farm -- 54 percent.
  • Allstate -- 52 percent.
  • GEICO -- 32 percent.

Which Insurance Providers Are the Most Up-Front?

When offering a quote, some insurance companies are more open about their use of credit scores in setting premiums. Based on how much detail they provide, where this information is located (on page one or page four) and the type size (whether the information is easy to see and read), WalletHub rated 10 insurance companies on the transparency of their use of credit ratings.

Here are the insurance providers rated by transparency, with 10 being a perfect score:

  • Progressive -- 10.
  • Farmers Insurance -- 9.
  • American Family -- 8.
  • USAA -- 7.
  • GEICO -- 6.5.
  • State Farm -- 6.
  • Allstate -- 6.
  • Travelers -- 5.5.
  • Nationwide -- 5.
  • Liberty Mutual -- 4.5.

What it means to you: In most states, drivers with bad credit will pay more for car insurance. As your credit score improves, shop around for a better deal on your car insurance.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Car Insurance Usually Costs More for Those With Bad Credit - Autotrader