It can happen to anyone — a couple years back, you went through a tough time financially and you fell behind on your credit card bills or maybe your mortgage. Your payments were late, and you even had to apply for a new credit card to keep up with everything. Not long after, you got back on your feet and started paying back your debt, and since then you’ve been on top of things, making all your payments on time. 

You felt like you were facing an impossible situation, but then you overcame the challenge and accomplished your goals, but now your credit score is holding you back. Maybe you just got a new car and you’re looking for cheap car insurance, but unfortunately, that can be hard to find if you have bad credit. 

If you’ve found yourself in a situation like this, don’t worry — you still have options. We’ve put together some tips and information so that you have everything you need to find cheap car insurance, no matter what your credit score is. 

How do Car Insurance Companies Use Your Credit Score?

When insurance providers assess your credit, they don’t actually evaluate you based on your entire credit score, but instead based on your credit-based insurance score, which isn’t quite the same thing. 

Your credit-based insurance score is generally based on these five factors (among others): payment history, outstanding debt, credit history length, pursuit of new credit, and credit mix. 

Payment history refers to how well you’ve made payments on debt you’ve held in the past, and if you have a consistent record of paying your debts on time, your credit-based insurance score will be greatly improved. 

Outstanding debt is the total amount that you owe –ideally, you’ll want to keep this number as low as possible. 

Your credit history length is how long you’ve had a line of credit. In general you want to have a long credit history, especially if that history shows a record of being responsible with your debt. Insurance providers will see a good credit score as more accurate and more reliable if it’s based on a longer period of time, and they’re likely to take it more seriously. 

Pursuit of new credit is how many times you’ve recently applied for new lines of credit (such as a new credit card or loan). It’s best if this number isn’t very high, since having a lot of recent applications will decrease your creditworthiness and make you seem less reliable. 

The last factor that normally contributes to an insurance provider’s assessment of your credit is your credit mix. This is just the combination of different types of credit you have, including credit cards, mortgages, or auto loans. You’ll want to have a relatively diverse credit mix — not just a bunch of credit cards and no other loans, for example.

Aside from the main five factors that affect your credit-based insurance score, there are also several factors that are off limits for insurance providers when evaluating your credit. These off-limits factors include: race, religion, gender, marital status, and age, though some of these factors likely do contribute to your insurance rates in other ways unrelated to credit. 

How to Find Cheap Car Insurance with Bad Credit

Your credit score isn’t just a number. It indicates how likely you are to pay your bills on time and make good on your debts. Of course that matters to car insurance companies — they want to know that you’ll pay your premiums, right?

Well, the relationship between bad credit and auto insurance is more complicated and perhaps more nefarious than that. It seems obvious that providers would use your credit report to predict how likely you are to pay your insurance bills, but they also use it to predict something else: how likely you are to file a claim. 

Some studies have shown a correlation between low credit scores and a higher likelihood to file an insurance claim, so car insurance companies believe credit scores indicate your risk factor. In other words, how likely is it that you’ll cost them money down the road? They scour your credit report to pick out the details they’re interested in, then compile them into a proprietary credit score only used by insurers, your credit-based insurance score. 

Because insurance providers evaluate you in this way, you may be charged for accidents you never had or future accidents that may never happen. In other words, you may be a safe driver, but just because you have a low credit score, some insurance companies can essentially just make the assumption that you’re not. “And if they think that your credit isn’t up to their highest standard, they will charge you more, even if you have never had an accident,” Consumer Reports says. 

Their data shows that bad-credit single drivers’ premiums cost between $68 and$526 more per year, on average, than similar drivers with the best scores. Ouch. 

So, how can you find cheap car insurance for bad credit? We asked some of the experts here at Compare.com for their advice, and they came up with these 7 tips:

1. Move to a state where bad credit doesn’t affect car insurance

Extreme? Maybe. Effective? Yes. The effect of bad credit on car insurance varies dramatically from state to state, since each state has different laws and regulations governing how car insurance rates are set. 

This map from Consumer Reports shows that your odds of scoring cheap car insurance with bad credit depend heavily on which state you live in. In North Carolina, bad credit may add $320 to your yearly premium. That’s nothing compared to states like Florida, where bad credit adds an average of $2,417 to the premium for a single adult driver with a clean record. 

The worst part is that, in many states, a good driver with bad credit could pay more than someone with a DWI who has excellent credit. Your credit score has nothing to do with your actual driving history, so it seems unfair that unsafe drivers with excellent credit could pay less, but it’s the unfortunate reality of the situation.

Some states — including California, Hawaii, Michigan, New Jersey, and Massachusetts — don’t let car insurance companies consider credit scores when setting insurance premiums. If your employment is flexible, or if you just want a fresh start, it may be worth moving so you can save $3,000 or more on your car insurance.

2. Find a cheaper car

If you’re paying off a car loan on a pretty new or nice car, maybe it’s time to trade it in and get something cheaper or more basic. We know it doesn’t feel right — it’s hard to announce to the world that a less-than-luxury vehicle is the best you can afford. But driving a cheap car has its advantages, as long as you’re not constantly breaking down. One, you won’t have those big car payments anymore (and you can focus on paying off your credit cards instead). Two, you may be able to drop collision and comprehensive coverage, which can significantly reduce the cost of bad credit car insurance.

3. Compare quotes for bad credit car insurance

To find cheap car insurance when you don’t have great credit, it helps to get as many quotes as you can. The quickest and easiest way to do that is on Compare.com, where you can get dozens of quotes in minutes. You may wonder if shopping for insurance will affect your credit score, and the answer is no! While it’s true that a hard credit inquiry or “hard pull” can have a negative effect on your credit score, insurance companies do a “soft pull” on your credit history, so your score won’t be affected when you’re getting quotes and shopping around.

Even after you’ve found the cheapest car insurance, keep comparing quotes every year. As you pay off debt and your credit score rises, car insurers will keep competing to offer you lower premiums.

4. Look into companies that offer cheap car insurance for drivers with bad credit.

Look, you’re not the only driver out there with a less-than-perfect credit score. There are many, many insurance companies that specialize in cheap car insurance for people with bad credit, such as Direct General and Good2Go. Or better yet, find a carrier that doesn’t use credit at all, like First Chicago.

5. Explain the circumstances to your insurer

Even in the cold, corporate world of car insurance, you may be able to find a little sympathy. Many insurance companies, for example, say that if your credit has suffered because of an extraordinary life event your premium may be reconsidered. Examples of an extraordinary life event include natural disasters (like hurricanes or wildfires), divorce, the death of a family member, or losing your job.

6. Take a really close look at your credit report

Credit reporting agencies make mistakes all the time, so it’s important to regularly monitor your report. You may even be a victim of fraud, which can hurt your credit. 

Get your complete credit report (not just the score) from annualcreditreport.com. That’s the only federally authorized site for free credit reports. Normally, the site allows for one free credit report each year, but because of the COVID-19 pandemic and the financial burden it created for many families, they are allowing weekly free credit reports until April 20th, 2022. 

Once you get your report, look at everything listed. Are there accounts you never had? Closed accounts reported as open? Accounts that appear multiple times with different creditors listed? Get these errors fixed right away.

7. Try to improve your credit score (even a little bit)

You don’t need a perfect 850 credit score to score cheap car insurance. Sometimes, even just a few points higher can make a world of difference as far as policy rates are concerned. Credit scores are often placed into categories like bad, fair, good, etc and if you can bump your credit-based insurance score into the next highest category, it’s also possible you’ll be placed into a different risk category by your insurance provider. 

For example, Experian considers a score of 580-669 to be fair and 670-739 to be good. Let’s say you have a score of 665. If you raise your score by just 5 points to get yourself into the “good” category, it could make a difference in your car insurance rates. 

So, how can you lift your credit score? There are several ways to make this happen, but one way is to avoid hard credit inquiries, which means minimizing how many times you apply for new credit, whether that be a new credit card or applying for a mortgage. Another way is simply to make sure you make every payment on time. 

It takes time to improve your credit, but one day you’ll see your score rise and your car insurance bills drop. 

Compare.com makes it easy to compare cheap auto insurance rates and save money, whatever your credit situation. Put in your info just once and get multiple, personalized quotes, in just a few minutes. And the best part? It’s totally free!

Bad Credit Car Insurance FAQs

What does bad credit mean?

Your credit score is calculated by a number of factors, but in general, a bad credit score indicates a history of financial mistakes, like failing to pay bills or owing lenders too much money. 

Who has the cheapest car insurance for drivers with bad credit?

No single car insurance company offers the cheapest rates to all drivers. Rates vary greatly depending on factors like age, marital status, and driving history, but the best way to find the cheapest insurance is to compare rates from multiple companies.

How often should I check my credit score?

You should check your credit score at least once each year to keep track of your financial status and check for any errors so that you can report them. A personal credit check is a soft inquiry and won’t affect your credit score.

How do I check my credit score?

Many banks and credit card companies offer free credit scores to their members, so that’s typically a great place to start. You can also check out annualcreditreport.com to get a free credit report.

What is the difference between a soft and hard credit check?

A soft credit check (or credit inquiry) does not affect your credit score or show up on your credit report, but a hard credit check, used for things like credit card and loan applications, can affect your credit score negatively.

What is the cheapest state for bad credit car insurance?

California, Hawaii, New Jersey, and Michigan, and Massachusetts don’t let car insurance companies consider credit scores when setting insurance premiums, so if you have bad credit, it may be cheapest to find a policy in one of those states.