FICO is the most popular credit scoring model, and on average, Americans have a FICO score of about 706. But more than one in four U.S. adults has a score below 649, which puts them in a range where it can be tough to get credit. Unfortunately, that can also make it difficult to get car insurance.
If you’re one of the millions of Americans with a less-than-perfect credit report and score, what can you do to get affordable car insurance coverage? Read on to learn about your options if you have bad credit.
Why Bad Credit Affects Your Car Insurance Rate
Why is it hard to get car insurance with bad credit? Traditionally, insurance companies have assessed insurance premiums based on the risk of an accident. But even if you have a spotless driving record, you could be paying more for car insurance because of bad credit. A FTC study determined that the lower someone’s credit score is, the higher the likelihood there will be a loss claimed against the insurance policy.
Whether it’s fair or not, insurance companies in most U.S. states use credit-based insurance scores when setting people’s premiums. The exceptions are California, Hawaii, and Massachusetts.
Options for Car Insurance with Bad Credit
If you find yourself with a poor credit history and score, you can still find a car insurance policy. The rates may be higher than if you had good credit, but at least you’ll be insured.
Look into usage-based insurance. For drivers who have a short commute or operate their car at off-peak times and, in general, don’t accumulate many miles on their car, usage-based insurance could be an option. These policies take into consideration when, where, and number of miles you drive to charge you for your insurance. Pay-as-you-drive insurance is more expensive, but if you can minimize your mileage and optimize your driving habits, it could keep the costs reasonable.
Find a non-credit-based insurer. Depending on where you live, there may be options for insurance providers who don’t pull a credit check. However, these companies tend to have higher prices overall. Since products vary from state to state, you’ll need to do some research to find local options.
Improve your credit score. Finding a relatively cheap car insurance policy now is a good idea, but tackling the root of the problem should be on your radar. Improving your credit score will make it easier to find insurance in the future, and it will also open up options for rent or mortgages, buying a car, and getting a low-rate credit card or loan.
Move to California, Massachusetts, or Hawaii. If it all seems like a lot of trouble — and if you plan on moving anyway — consider relocating to one of the three states that don’t take your credit score into consideration for car insurance. It certainly isn’t an ideal solution, but there are worse places to live, right?
Compare quotes for insurers with high-risk driver policies. Most insurers offer car insurance for people with bad credit. Since you are deemed a high-risk driver, your insurance rate is higher than someone with the same driving record, location, and use that has good credit. Compare quotes from several insurance companies to discover which one has the best rates for you. Options often include Direct Auto, Progressive, Allstate, GEICO, and Dairyland.
To find the best rate on car insurance if you have bad credit, consider using Jerry. By providing a few personal details, you’ll discover how you can save money on insurance through bundles and discounts you may be eligible for.