Drivers With Poor Credit Pay Higher Insurance Rates in Most States

Auto Insurance, Insurance
Car insurance rates

Your credit rating may not seem to have much to do with your driving, but it’s a big deal to your auto insurer.

When you apply for car insurance, companies can look at your credit-based insurance score to help forecast your odds of filing future claims. People with credit problems tend to get higher quotes than other drivers in all but three states — and they’ll pay almost $2,000 more per year in one state.

To pinpoint how much poor credit can impact car insurance rates, we analyzed quotes from across the country for 30-year-old drivers with poor credit. We then compared those rates with prices for drivers of the same age who had good credit, and ranked the 47 other states and the District of Columbia to see which ones had the smallest and largest differences.

Difference in rates between drivers with good and bad credit

National ranking (biggest to smallest price differences)StateHow much more drivers with poor credit pay than ones with good credit
Note: California, Hawaii and Massachusetts don't allow the use of people's credit ratings in car insurance rates.
1Michigan$1,969/year
2Louisiana$1,354/year
3Delaware$1,344/year
4District of Columbia$1,340/year
5New Jersey$1,204/year
6Connecticut$1,060/year
7Minnesota$1,039/year
8Kentucky$980/year
9Colorado$965/year
10Nevada$958/year
11Rhode Island$861/year
12Illinois$830/year
13Indiana$798/year
14New Mexico$763/year
15Mississippi$738/year
16West Virginia$737/year
17Maryland$727/year
18Alaska$720/year
19North Dakota$719/year
20Arizona$685/year
21Arkansas$659/year
22Oklahoma$657/year
23Texas$655/year
24Utah$600/year
25Missouri$597/year
25Montana $597/year
27Kansas$594/year
28Pennsylvania$590/year
29New York$573/year
30Ohio$567/year
31Idaho$539/year
32Florida$481/year
33Alabama $460/year
34Oregon$456/year
35South Carolina$448/year
36Maine$443/year
37Nebraska$415/year
38Tennessee$413/year
39Virginia$411/year
40South Dakota$402/year
41
Wisconsin$394/year
42North Carolina$369/year
43Iowa$368/year
44New Hampshire$365/year
45Georgia$355/year
46Washington$318/year
47Vermont$312/year
48Wyoming$275/year
Average increase among states $690/year

Insurance rates vary by state and by insurer. Insurers set their rates in each area based on the risk of claims they perceive and the claims they have paid. In addition, each state insurance department has a rate-approval process and can decline rates that it thinks are exorbitant. This leads to a complex patchwork of rate variations across the country.

Having credit problems can be one of the biggest roadblocks to getting cheap car insurance. California, Hawaii and Massachusetts ban car insurers from increasing rates based on credit information.

In the states that allow the use of credit in setting rates, drivers with poor credit pay an average of $690 more per year for auto coverage than if they had good credit.

For comparison, drivers who’ve caused a crash pay an average of $446 more per year than those with clean records, according to our analysis.

Wyoming drivers had the lowest average price difference; drivers with poor credit pay $275 more per year than those with good credit. On the other end, Michigan had the largest rate disparity between motorists with good and poor credit, at almost $2,000 per year.

The specific rating that insurers consider when they set prices is known as a credit-based insurance score, which is different from the credit score that consumers get, such as FICO, VantageScore or others.

It’s important to shop around for car insurance no matter what your credit — or driving record — is because rates for the same coverage vary widely among insurers.

» COMPARE: NerdWallet’s car insurance comparison tool

You can take steps to improve your credit to get better car insurance rates, such as:

  • Paying all your bills on time
  • Paying off your credit cards
  • Keeping future credit card balances well under the card limits

» MORE: Add 100 points to your credit score

For state-by-state rankings: First, we averaged the three cheapest rates from the largest insurers in each state, across 10 ZIP codes in every state, for 30-year-old men and women with good credit. Coverage limits were:

  • 100/300/50 liability insurance
  • 100/300 uninsured motorist coverage
  • Collision and comprehensive with a $1,000 deductible
  • Other minimum state-required coverages, where needed

We then gathered rates for drivers with poor credit and compared the difference in rates.
We used a 2013 Toyota Camry in all case. These are sample rates generated through Quadrant Information Services. Your own rates will be different.

 

Alex Glenn is a staff writer at NerdWallet, a personal finance website. Email: aglenn@nerdwallet.com.