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)||State||How 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.|
|4||District of Columbia||$1,340/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
- 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: email@example.com.