Your credit history creeps into almost every aspect of your financial life, including car insurance.
When you apply for a policy, insurance companies can analyze your credit history to anticipate how likely you will file a claim in the future. Credit problems will typically result in higher car insurance estimates for drivers in all but a few jurisdictions. California, Hawaii, and Massachusetts prohibit insurers from using credit to determine car insurance rates.
We compared numerous estimates from each of the other 47 states and the District of Columbia to determine the impact of low credit on car insurance rates. A FICO score of 579 or lower is typically considered “poor” credit, however insurers view credit differently.
We compared costs for 30-year-old drivers with clean driving records and strong credit to those for identical driver profiles with low credit as stated by the insurance. The costs vary greatly, but in 29 states, drivers with bad credit pay more than $1,000 extra each year.
Difference in rates between drivers with good and bad credit
| National ranking | State | Annual price increase for poor credit | Monthly price increase |
| 1 | Michigan | $5,571 | $464 |
| 2 | Kentucky | $2,216 | $185 |
| 3 | New Jersey | $2,138 | $178 |
| 4 | New York | $2,124 | $177 |
| 5 | Louisiana | $1,940 | $162 |
| 6 | Florida | $1,898 | $158 |
| 7 | Nevada | $1,764 | $147 |
| 8 | Texas | $1,759 | $147 |
| 9 | Minnesota | $1,726 | $144 |
| 10 | Missouri | $1,663 | $139 |
| 11 | Kansas | $1,638 | $137 |
| 12 | Oregon | $1,533 | $128 |
| 13 | Montana | $1,465 | $122 |
| 14 | Arizona | $1,419 | $118 |
| 15 | Connecticut | $1,396 | $116 |
| 16 | D.C. | $1,386 | $115 |
| 17 | Delaware | $1,347 | $112 |
| 18 | Colorado | $1,334 | $111 |
| 19 | West Virginia | $1,243 | $104 |
| 20 | Alabama | $1,234 | $103 |
| 21 | Rhode Island | $1,225 | $102 |
| 22 | Utah | $1,219 | $102 |
| 23 | Mississippi | $1,214 | $101 |
| 24 | Illinois | $1,168 | $97 |
| 25 | Georgia | $1,155 | $96 |
| 26 | Pennsylvania | $1,134 | $94 |
| 27 | Oklahoma | $1,120 | $93 |
| 28 | Maryland | $1,098 | $91 |
| 29 | Arkansas | $1,008 | $84 |
| 30 | Tennessee | $971 | $81 |
| 31 | New Mexico | $902 | $75 |
| 32 | South Carolina | $862 | $72 |
| 33 | Vermont | $850 | $71 |
| 34 | North Dakota | $848 | $71 |
| 35 | Washington | $831 | $69 |
| 36 | Idaho | $824 | $69 |
| 37 | Ohio | $792 | $66 |
| 38 | Wisconsin | $788 | $66 |
| 39 | New Hampshire | $764 | $64 |
| 40 | Indiana | $760 | $63 |
| 41 | Maine | $738 | $62 |
| 42 | Nebraska | $735 | $61 |
| 43 | South Dakota | $717 | $60 |
| 44 | Alaska | $684 | $57 |
| 45 | Virginia | $609 | $51 |
| 46 | Wyoming | $451 | $38 |
| 47 | Iowa | $449 | $37 |
| 48 | North Carolina | $235 | $20 |
| Average increase: | $1,270/year | $106/month | |
How credit history affects car insurance
Insurance premiums vary by state and company. Insurers calculate their rates based on risk variables and claims paid in each area. Furthermore, each state insurance department has a rate-approval process and can reject rates that it deems excessive. This results in a complex patchwork of rate fluctuations throughout the country.
One of the most significant barriers to obtaining low-cost car insurance is poor credit. In jurisdictions where credit can be used to establish rates, drivers with poor credit pay an average of $1,270 more per year for auto insurance than those with strong credit.
North Carolina drivers had the smallest average price difference; those with poor credit paid $235 more per year than those with good credit. On the other hand, Michigan had the highest rate differential between motorists with good and bad credit, at $5,571 per year.
Insurers employ a credit-based insurance score to calculate pricing, which is distinct from the score used to determine whether to issue you a loan or credit card. It is based on much of the same information as those credit reports, but it employs a different scoring algorithm to forecast your likelihood of filing an insurance claim.
It is critical to search around for car insurance, regardless of your credit or driving history, because costs for the same policy vary greatly between insurers.
To improve your credit and receive better car insurance rates, you can do the following:
- Paying all your bills in time.
- Paying off your credit card
- Maintaining future credit card balances below 30% of the card limit.
