Bad Credit Drivers: How to Avoid Overpaying for Insurance

Driving with bad credit can feel like navigating a minefield—especially when it comes to car insurance. Many drivers don’t realize that their credit score plays a significant role in determining their insurance premiums. In fact, studies show that drivers with poor credit can pay up to 91% more for car insurance than those with excellent credit.

If you’re struggling with bad credit, don’t despair. There are ways to minimize the financial burden and avoid overpaying for coverage. Below, we’ll explore why insurers care about credit, how it affects your rates, and—most importantly—strategies to keep your premiums affordable.

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Why Do Insurers Check Your Credit?

You might wonder why car insurance companies even care about your credit score. After all, isn’t insurance about driving history, not financial history?

The Link Between Credit and Risk

Insurance companies use credit-based insurance scores (different from traditional FICO scores) to predict risk. Statistically, drivers with lower credit scores file more claims and cost insurers more money. While this correlation doesn’t apply to every individual, insurers rely on big data to set rates.

States That Restrict Credit-Based Pricing

Not all states allow insurers to use credit scores when determining premiums. If you live in:
- California
- Hawaii
- Massachusetts
- Michigan

…you’re in luck—insurers in these states cannot factor credit into your rates. However, if you live elsewhere, your credit could be a major factor in what you pay.

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How Bad Credit Impacts Your Insurance Costs

Just how much more can bad credit cost you? The numbers might shock you.

Average Annual Premiums by Credit Tier

| Credit Tier | Average Annual Premium |
|-------------|------------------------|
| Excellent | $1,450 |
| Good | $1,780 |
| Fair | $2,300 |
| Poor | $2,770 |

As you can see, drivers with poor credit pay nearly double what those with excellent credit pay.

Why the Gap Is Growing

With inflation and rising repair costs, insurers are becoming even more cautious. Many have tightened underwriting rules, making bad credit an even bigger penalty than before.

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Smart Ways to Lower Your Rates (Even with Bad Credit)

Bad credit doesn’t have to mean financial ruin. Here’s how to fight back against high premiums.

1. Shop Around—Aggressively

Not all insurers weigh credit the same way. Some companies specialize in high-risk drivers and may offer better deals.

Best Insurers for Bad Credit Drivers:

• The General – Known for high-risk coverage
• Progressive – Often competitive for subprime borrowers
• State Farm – May be more forgiving of credit issues

Use comparison tools like NerdWallet or The Zebra to find the best rate.

2. Ask About Discounts

Many insurers offer discounts that can offset high base rates. Common ones include:
- Safe driver discounts (even with bad credit, a clean record helps)
- Bundling home and auto insurance
- Pay-in-full discounts (save up to 10%)

3. Improve Your Credit Over Time

While this isn’t an instant fix, raising your credit score can lead to lower premiums at renewal.

Quick Credit Boost Tips:

• Pay down high credit card balances
• Dispute errors on your credit report
• Avoid opening new credit lines unnecessarily

4. Consider Usage-Based Insurance

Programs like Progressive’s Snapshot or Allstate’s Drivewise track your driving habits. If you’re a safe driver, you could earn discounts regardless of credit.

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Alternative Strategies If Traditional Insurance Is Too Expensive

If standard insurers won’t give you a fair rate, consider these options.

Non-Standard Insurance Providers

Companies like Dairyland or Bristol West cater to high-risk drivers. While premiums may still be high, they’re often more flexible than mainstream insurers.

State-Assigned Risk Pools

If you’ve been denied coverage, some states offer assigned risk pools as a last resort. Be warned—these plans are expensive, but they meet legal requirements.

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The Future of Credit-Based Insurance Pricing

With growing scrutiny over fairness, some lawmakers are pushing to ban credit-based pricing entirely. The No Discrimination in Insurance Scores Act (if passed) could change the game.

For now, though, bad credit remains a costly hurdle for many drivers. By staying informed and proactive, you can still find ways to keep your insurance affordable.