Auto Insurance with Bad Credit: How to Get Affordable Coverage

If you have bad credit, you're probably already feeling the financial squeeze in many areas of your life — higher interest rates on loans, difficulty renting apartments, and limited credit card options. But what many people don't realize is that your credit score can also dramatically affect how much you pay for auto insurance.

In most states, insurers use a credit-based insurance score as one of the key factors in determining your premium. Drivers with poor credit can pay 40% to 100% more than those with excellent credit for the exact same coverage. That's a difference of hundreds — even thousands — of dollars per year.

The good news? Having bad credit doesn't mean you're stuck paying sky-high rates forever. In this guide, we'll explain exactly how credit affects your auto insurance, which states protect you from credit-based pricing, and practical strategies to get affordable coverage right now.

How Does Credit Affect Auto Insurance Rates?

Insurance companies don't pull your regular FICO credit score. Instead, they use something called a credit-based insurance score, which is a specialized score calculated using data from your credit report. While the exact formula varies by insurer, it typically considers:

Payment history: Whether you pay bills on time is the biggest factor.
Outstanding debt: How much you owe relative to your credit limits.
Length of credit history: Longer histories are viewed more favorably.
New credit applications: Multiple recent applications can lower your score.
Credit mix: A diverse mix of credit types (mortgage, credit cards, auto loans) is seen as positive.

Why do insurers care about credit? Studies conducted by the insurance industry have found a statistical correlation between lower credit-based insurance scores and a higher likelihood of filing claims. While this correlation is controversial — and critics argue it unfairly penalizes lower-income individuals — it remains legal in most states.

How Much More Do Bad Credit Drivers Pay?

The impact varies by state and insurer, but here's a general breakdown of how credit tiers affect average annual full coverage premiums:

Excellent credit (800+): ~$1,400/year
Good credit (670-799): ~$1,700/year
Fair credit (580-669): ~$2,200/year
Poor credit (below 580): ~$2,800/year

That means a driver with poor credit could be paying $1,400 more per year than someone with excellent credit — even with an identical driving record, vehicle, and coverage levels. Over five years, that's $7,000 in extra costs.

States That Don't Use Credit Scores for Auto Insurance

Not every state allows insurers to use credit in their rating calculations. If you live in one of these states, your credit score won't affect your auto insurance premium:

California — Proposition 103 prohibits the use of credit scores in auto insurance pricing.
Hawaii — State law bans credit-based insurance scoring for auto insurance.
Massachusetts — Insurers cannot use credit information to set auto insurance rates.
Michigan — Credit scores cannot be used as a rating factor for auto insurance.

Several other states, including Maryland, Oregon, and Utah, have restrictions on how credit can be used — for example, prohibiting insurers from using the absence of a credit history as a negative factor, or requiring them to re-evaluate your score if it improves.

If you live in one of the four states above, you can skip the credit improvement tips below and focus on other ways to save. For everyone else, credit is a major lever worth optimizing.

Tips to Get Cheaper Auto Insurance with Bad Credit

1. Compare Quotes from Multiple Carriers

This is the most important step for drivers with bad credit. Different insurers weigh credit differently in their formulas. Some penalize poor credit heavily, while others are more lenient. By comparing quotes from multiple carriers through a service like Apex Coverage Group, you can find the insurer that offers you the best rate despite your credit situation.

2. Start Improving Your Credit Now

While this won't help overnight, taking steps to improve your credit will pay off at your next renewal. Focus on these fundamentals:

Pay all bills on time — Payment history is the biggest factor. Set up autopay to avoid missed payments.
Pay down credit card balances — Aim to keep your credit utilization below 30% of your credit limit.
Don't close old accounts — Length of credit history helps your score.
Check your credit report for errors — Dispute any inaccuracies with the credit bureaus. Errors are more common than you think.
Avoid opening unnecessary new accounts — Each hard inquiry temporarily dings your score.

Even a modest improvement — moving from "poor" to "fair" credit — can save you several hundred dollars per year on auto insurance.

3. Look for Insurers That Emphasize Driving Record Over Credit

Some insurance companies place more weight on your driving history than your credit score. If you have a clean driving record but bad credit, these carriers may offer you significantly better rates than companies that lean heavily on credit scoring.

4. Take Advantage of Every Discount

Discounts can offset the surcharge you're paying due to bad credit. Ask about every possible discount:

Multi-policy (bundling) discount — learn about bundling savings
Safe driver discount
Defensive driving course discount
Low mileage discount
Paperless billing and autopay discounts
Vehicle safety features discount

5. Raise Your Deductible

Increasing your deductible from $500 to $1,000 can lower your premium by 15-40%. This is especially impactful for drivers paying inflated rates due to bad credit. Just make sure you have enough in savings to cover the higher deductible if you need to file a claim. Our deductibles guide can help you decide.

6. Consider State Minimum Coverage

If you're struggling to afford full coverage, carrying your state's minimum required liability insurance is better than driving uninsured. While minimum coverage provides less protection, it keeps you legal and covered. Read our comparison of minimum vs. full coverage to understand the tradeoffs.

7. Pay Your Premium in Full

Many insurers charge installment fees when you pay monthly. If you can afford to pay your 6-month or annual premium in full, you'll avoid these fees and often receive a paid-in-full discount. This can save you $50-$150 per year on top of avoiding finance charges.

8. Ask About Usage-Based Insurance

Usage-based insurance (UBI) programs track your actual driving behavior through a mobile app or device. If you're a safe driver who doesn't log many miles, UBI can help you earn a discount based on your real driving habits rather than your credit profile.

What to Avoid When Shopping with Bad Credit

While searching for affordable coverage, watch out for these pitfalls:

Don't go uninsured. Driving without insurance is illegal in almost every state and can result in fines, license suspension, and financial ruin if you cause an accident.
Don't accept the first quote you get. With bad credit, shopping around is even more important because the price variation between insurers is wider.
Don't buy coverage you don't need. Review your policy carefully and eliminate coverages that don't make sense for your situation.
Don't ignore your credit report. You're entitled to one free credit report per year from each of the three bureaus. Use them.

The Bottom Line

Bad credit makes auto insurance more expensive in most states, but it doesn't mean you can't find affordable coverage. The key is to compare quotes from multiple carriers, take advantage of every available discount, and start working on improving your credit for long-term savings. Even small credit improvements can lead to meaningful premium reductions over time.

If you haven't compared rates recently, now is the time. A few minutes of comparison shopping could save you hundreds of dollars — even with imperfect credit.

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