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Drivers With Poor Credit Pay Higher Insurance Rates in Most States

Poor credit has the biggest effect in Michigan, Kentucky and New Jersey, our analysis found.
March 8, 2018
Auto Insurance, Insurance
drivers with poor credit pay more for insurance

Your credit history seeps into most corners of your financial life, and car insurance is no exception.

When you apply for a policy, insurance companies can use your credit history to predict how likely you are to file a future claim. Credit blemishes will generally result in higher car insurance quotes for drivers in all but three states. (California, Hawaii and Massachusetts ban car insurers from increasing rates based on credit information.)

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We analyzed multiple quotes in each of the other 47 states and the District of Columbia to see the impact poor credit has on car insurance rates. Generally a FICO score of 579 or lower is considered “poor” credit, but insurers treat credit differently.

We compared prices for 30-year-old drivers with clean driving records and good credit to prices for identical driver profiles with poor credit as reported to the insurer. The increases vary widely, but in 29 states, drivers with bad credit pay, on average, more than $1,000 more each year.

Difference in rates between drivers with good and bad credit

National rankingStateAnnual price increase for poor creditMonthly price increase
Average increase:$1,270/year$106/month
1Michigan$5,571 $464
2Kentucky$2,216 $185
3New Jersey$2,138 $178
4New York$2,124 $177
5Louisiana$1,940 $162
6Florida$1,898 $158
7Nevada$1,764 $147
8Texas$1,759 $147
9Minnesota$1,726 $144
10Missouri$1,663 $139
11Kansas$1,638 $137
12Oregon$1,533 $128
13Montana$1,465 $122
14Arizona$1,419 $118
15Connecticut$1,396 $116
16D.C.$1,386 $115
17Delaware$1,347 $112
18Colorado$1,334 $111
19West Virginia$1,243 $104
20Alabama$1,234 $103
21Rhode Island$1,225 $102
22Utah$1,219 $102
23Mississippi$1,214 $101
24Illinois$1,168 $97
25Georgia$1,155 $96
26Pennsylvania$1,134 $94
27Oklahoma$1,120 $93
28Maryland$1,098 $91
29Arkansas$1,008 $84
30Tennessee$971$81
31New Mexico$902$75
32South Carolina$862$72
33Vermont$850$71
34North Dakota$848$71
35Washington$831$69
36Idaho$824$69
37Ohio$792$66
38Wisconsin$788$66
39New Hampshire$764$64
40Indiana$760$63
41Maine$738$62
42Nebraska$735$61
43South Dakota$717$60
44Alaska$684$57
45Virginia$609$51
46Wyoming$451$38
47Iowa$449$37
48North Carolina$235$20

How credit history affects car insurance

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

In states that allow the use of credit in setting rates, drivers with poor credit pay an average of $1,270 more per year.

Having credit problems can be one of the biggest roadblocks to getting cheap car insurance. In the states that allow the use of credit in setting rates, drivers with poor credit pay an average of $1,270 more per year for auto coverage than those with good credit.

North Carolina drivers had the lowest average price difference; drivers with poor credit pay $235 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 $5,571 per year.

Insurers use a credit-based insurance score to set prices, which is different from the score used to decide whether to extend you a loan or credit card. It’s based on much of the same information in those credit reports, but uses a different scoring model to predict how likely you are to file an insurance claim.

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 under 30% of the card limit

» MORE: How to 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:

  • $100,000 bodily injury liability coverage per person
  • $300,000 bodily injury liability coverage per crash
  • $50,000 property damage liability coverage per crash
  • $100,000 uninsured motorist bodily injury coverage per person
  • $300,000 uninsured motorist bodily injury coverage per crash
  • Collision and comprehensive each 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 2014 Toyota Camry in all cases. These are sample rates generated through Quadrant Information Services. Your own rates will be different.