Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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Numerous factors contribute to the cost of your car insurance premiums. Your credit score, driving history, age and type of car you drive all affect the price of your insurance. Some factors do have a larger role in determining the cost of insurance than others, however. Your driving history is the single largest determiner of car insurance rates; if you are a safe driver with bad credit, you will have more affordable insurance than a person with excellent credit but a history of accidents. However, it is very possible to obtain affordable car insurance even if you do not have good credit.

Why does my credit score affect my car insurance rates?

Car insurance companies gauge your financial health and responsibility through your credit score. If you have good credit, the company may assume that you will make your premium payments regularly and on time. Insurance companies (like all businesses) prefer customers who provide stable income through consistent payments. The best indicator a company has of your financial reliability is your credit score, at least until you have established a relationship with the company.

People with poor credit may be less likely to have extra money on hand to pay for deductibles or minor car repairs. This could lead to small claims being filed for damage that could otherwise have been paid out of pocket. Car insurance companies prefer to avoid claims for minor damage whenever possible. A claim for $100 uses the same amount of man hours as a claim for $10,000, but it’s much more likely that a person will file several $100 claims in his lifetime. Because small claims are costly to the insurance company, insurers prefer to offer coverage to individuals who have a lower chance of filing multiple small claims. In many cases, this means people with healthy finances who can afford their own minor repairs.

Can I buy affordable car insurance with a bad credit score?

Your credit score is only one small part of determining your car insurance rates. Your driving history and the type of vehicle insured play a much larger role in setting your premiums. If you are a safe driver without any history of accidents or claims, your car insurance rates will typically remain affordable regardless of your credit. After you establish a relationship with your auto insurance company and prove that you are reliable and consistent, your rates may decrease further. In many cases, insurance providers reward loyal long-term customers with discounts.

If you are purchasing a new insurance policy, be aware that the initial quote you receive may be lower than the actual cost of your specific policy. This is because the initial quote you obtain online will be an estimate for a person in your area; it will not factor in your credit and driving history. The insurance company will call you after running a credit check to provide a more accurate quote and set up a policy for you.

How can I reduce the cost of car insurance if my credit score is bad?

If your auto insurance premiums are too high, you can save money by changing the coverage on your vehicle. You may choose to increase the amount of your deductible or lower the limits of your liability coverage. You can also drop extra coverage like roadside assistance or rental reimbursement. The less money your insurance company needs to pay in the event of a claim, the less expensive your premiums will be each month.

Also be sure to ask your insurance company if there are any discount programs you can enroll in. You may qualify for a safe driving discount if you have not had any car accidents. You could also get a discount for having multiple types of policy with a single company or for driving limited miles each year. Your rates are reviewed at the end of each policy term, so your premiums may go down at every renewal if you maintain safe habits.

Once you build up a positive relationship with your insurance company and prove that you are able to pay your premiums on time each month, your rates may begin to decrease. Paying your bill regularly and on time will also help improve your overall credit health, so an insurance policy can help you to repair your credit.