Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Full Bio →

Written by

Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate drivers about...

Full Bio →

Reviewed by Laura Walker
Licensed Agent for 10 Years

UPDATED: Aug 21, 2019

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance-related. We update our site regularly, and all content is reviewed by auto insurance experts.

In these tough economic times, many people are faced with credit issues. Foreclosures, repossessions, and suits for debts are common, even among people who previously paid their bills on time.

These unfortunate occurrences can affect more than just your wallet, however. You may end up paying more in car insurance as a result of them.

Use our FREE quote tool to compare insurance rates now!

Many states now allow credit scores to be used by auto insurance companies as a determinant of what someone will pay for auto insurance.

This may seem grossly unfair to some people, but the logic behind it is hard to escape: people with low credit scores have a higher incident rate (on average) for default on bills, and are more likely to be classed as “high-risk” by insurance companies.

This same logic has been used for years to charge younger and older drivers higher insurance rates. Actuaries, people who compile and analyze statistical data, can easily show that these groups have much higher incidents of car accidents than other groups.

Single people are more statistically likely to be involved in an accident than married couples. People with one driving violation often incur another one in a relatively short period of time.

These statistical facts are used to justify higher rates for the group as a whole, just as life insurance companies charge higher rates for smokers or those with certain inherited diseases, even if the person is in very good health at the time of application.

Naturally, this does not mean that you, as an individual, have any of the qualities of the group by which you are assessed. There are many young people who are much more responsible drivers than adults.

There are many people who incur a ticket and never have another one.

There are many single people who are less likely to have an accident than a married couple. Unfortunately, you cannot argue your single case when you are assessed by a group demographic.

So how does bad credit affect your auto insurance rates?

Every month, your credit report is compiled by three major reporting agencies: Experian, TransUnion, and Equifax. These companies offer coded reports to anyone who has permission to access your credit.

If you apply for a credit card, a car loan, or a mortgage, your potential loan provider receives permission from you to check your credit score and make a determination of your creditworthiness from what it contains.

Credit scores range from 300 to 900, with a 750 or above being considered good. 600-750 is fair to good, and anything below a 600 will probably cause you to be denied for certain loans, or to have to pay a higher interest rate.

In some states, you now give permission to your car insurance company to check your credit as well. The insurance company rates you by your driving record, demographics, and credit score. What they find will determine how much you have to pay for auto insurance.

FREE Auto Insurance Comparison

Compare quotes from the top auto insurance companies and save!

 Secured with SHA-256 Encryption

What do auto insurance companies look for in your credit report?

When looking at your credit score, auto insurance companies operate on the same logic they use when assessing your demographics. People who are careful with their credit and pay their bills on time tend to be careful when they are driving; the reverse is also true.

It does not mean that you are a bad driver—simply that you are a member of a group with an overall poorer driving record than those with good credit.

For this reason, a repossession may cause your auto insurance rates to climb. Repossessions hurt your credit score tremendously; you have defaulted on a loan and caused the creditor to have to seize the security, which means your creditworthiness is probably much lower than when you bought the vehicle.

Unfortunately, credit reporting agencies do not take into account why you defaulted; illness, job loss, and misfortune count the same as simply refusing to pay your bills in the eyes of a credit reporting firm.

What can you do if you’re faced with repossession or other situations that lower your credit score?

First, try to prevent the worst from happening by not taking on more than you can handle. Most people who default on car payments have simply bought too much car for their situation, especially if unexpected expenses arise.

Make a budget that you can truly live with, even if your income was to be reduced.

If you are already facing repossession, talk to the lender. Most lenders would rather do almost anything than repossess a car, as it means tremendous expense for them with very little return. It is the last resort when they feel that there is no other way to collect any of their money.

By negotiating with the lender, you can often keep your car at reduced payments, or delay some payments for a period of time.

You may also look into other avenues of lending to pay for your car and keep your payments current. Family or friends may be able to help; you may also be able to refinance higher-interest loans for lower ones if you act before your credit score drops too low.

Find Affordable Auto Insurance Rates Online!

Related posts:

  1. What makes auto insurance rates more expensive?
  2. Why do some auto insurance companies charge more if you have bad credit?
  3. Do auto insurance companies check credit?
  4. How much are average California auto insurance rates?