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UPDATED: Mar 13, 2020
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Whenever you submit a car insurance quote request online, the initial number you receive may not reflect the actual cost of insurance. Usually the car insurance company will call you back to discuss the details of your premiums. The reason for this delay is that the insurance company’s initial quote is based off of your demographic information, such as where you live, how old you are and what type of car you drive. In order to provide an accurate quote, the auto insurance company must search for your claims history and run a credit check on you.
If you do not have good credit, your car insurance premiums may be higher than the initial quote. You should still be able to purchase car insurance, but you will not get as good of rates as people with excellent credit. There are two main reasons why your credit score impacts your insurance cost:
Credit is viewed as proof of financial responsibility
In order to maintain good credit, you must have a history of paying bills on time. This is important to your insurance company for the same reason it’s important to your landlord or mortgage company: If you don’t pay your bill on time, the company doesn’t receive the money that it’s owed. With car insurance it’s especially important to pay your premiums on time each month as late or missed payments could cause your coverage to be suspended. You would then be driving without insurance, which could lead to traffic citations or even a suspended license. Additionally, any accidents you are involved in during the period that your insurance is lapsed would not be paid for. You would need to pay for any damage out of your own pocket and could be sent to collections for damage that you cause, which would impact your credit score even further.
Credit is also a sign of financial health
Not everyone with poor credit has low income, but unfortunately many low-income families also have bad credit. If you have very little disposable income, you will have a more difficult time finding the money to pay your deductible in the event of an accident. You may also be more likely to file a claim for minor damage rather than pay to have the repairs completed yourself. If you file a claim for only one large accident, you do not cost your insurance company as much to insure as you do if you file several small claims. This is because the man hours required to settle a small claim are nearly the same as those needed for a major accident. Since you are more expensive to the company, the insurer will raise your rates accordingly. In the case of people with bad credit, the increased rates are a preemptive measure to prevent this situation from occurring where possible.
Can I get car insurance with bad credit?
Although your credit history does play a role in determining the cost of your auto insurance, it is far from being the most important factor in determining your rates. If you are an otherwise safe driver, you should be able to purchase an auto insurance policy regardless of your credit score. Once you obtain the policy, you can show that you are responsible and able to pay your premiums regularly. After seeing that you are a reliable customer, your insurance company may be able to offer you a discount.
If you are having a difficult time making your payments, you should contact your car insurance company immediately. Your agent may be able to help you change your coverage to a more affordable plan that will still cover your needs. If a payment may be late, call in advance to let your insurance company know the situation and they may be able to work with you to move the due date so that you do not experience any gaps in coverage.
Maintaining a clear line of communication with your insurance company will ensure that you do not have any problems with your policy and will also help you to maintain a good payment record with them. Not only will this improve your relationship with your insurance company, it will also help you to repair your damaged credit score.