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Car insurance with poor credit: ways to lower the bill
In most states insurers price on a credit-based score. Check your report for errors, ask for a re-score or a life-event exception, and shop across insurers.
In most states, insurers can use a score built from your credit report to set your car insurance price, so damaged credit can raise your bill. You have more control than it seems. Start by checking your reports for errors, because a wrong item can be disputed and corrected. Ask your insurer to re-score you or to make an exception after a major life event. Then compare several insurers, because they do not all weigh credit the same way, and pull the price levers that have nothing to do with credit.
This article explains how the score differs from the one a lender sees, which states limit it, which items on a report matter most, and a step-by-step plan for lowering the bill.
A credit-based insurance score is not your credit score
A credit-based insurance score is built partly or entirely from credit report information, but its job is different from a lender's score. The National Association of Insurance Commissioners (NAIC) explains that the score estimates how likely someone is to file an insurance claim, not how likely they are to repay a loan. Insurers use it for underwriting (deciding whether to offer coverage) and rating (deciding how much to charge). The NAIC cites a FICO estimate that about 95% of auto insurers use these scores where allowed.
Several points that follow from that:
- It is one factor among many. The NAIC's consumer article says insurers use the score as one factor, alongside items such as ZIP code, driver age, vehicle make, model and age, and annual mileage. Your driving record and claims history carry weight too. See rating factors.
- It excludes a long list of data. According to the NAIC's consumer article on credit-based insurance scores, the score cannot use race, color, national origin, religion, gender, marital status, age, income, occupation, employment history or where you live. It also leaves out certain inquiries (such as account reviews, employment inquiries and promotional inquiries) and participation in credit counseling.
- Different companies build different scores. The NAIC notes that several companies create these scores. That is why two insurers can price the same credit history differently, and why shopping around matters (more on that below).
- Models are filed with regulators in some states. The model law written by the National Council of Insurance Legislators, discussed below, calls for insurers that use scores to file their scoring models with the state insurance department. Whether yours does depends on your state.
The relationship between credit and claims is contested. Consumer advocates and some regulators question whether the scores fully reflect risk, especially after events such as illness or job loss that damage credit without making someone a worse driver. The NAIC's topic page records that questioning. This article does not take a side; it focuses on what you can do.
Which states limit or ban credit in car insurance pricing
Rules vary widely, which is why the first step is knowing what applies where you live. The NAIC says that in most states insurers cannot use these scores as the sole reason to raise rates or to deny, cancel or refuse to renew a policy, that some states add restrictions or prohibit certain uses, and that many states require notice to the consumer when credit information played a role in an adverse decision.
An Experian article dated March 18, 2025 summarizes the states that go further for auto insurance:
| State | What the summary says |
|---|---|
| California | Insurers do not use credit-based scores or credit history to underwrite or rate auto policies |
| Hawaii | Auto insurers cannot use credit ratings in underwriting standards or rating plans |
| Massachusetts | Insurers cannot use credit information or credit-based insurance scores to set rates, underwrite new policies or renew policies |
| Michigan | Insurers cannot use credit to deny, cancel or refuse to renew, or to set auto rates, but may still consider it when deciding which installment payment options to offer |
| Maryland | Credit can help set the rate on a new policy, but not to deny an application, cancel, refuse renewal or raise premiums at renewal |
| Oregon | Insurers cannot cancel or refuse to renew based on credit; they may consider limited credit information when first offering a policy |
| Utah | Credit cannot be the only factor when first underwriting, and after 60 days it cannot be used to cancel or refuse renewal; it can be used for discounts, not surcharges |
Statutes change, and a one-line summary leaves out detail. Treat the table as a signpost and confirm your state's rule with its insurance department. Our article on rating factors some states have banned: gender, credit, occupation covers the legal details of some of these bans, and the state car insurance requirements lookup helps with your state's basics.
If you live in a state that bans credit in auto pricing, nothing in this article about credit-based score fixes applies to your car insurance price, and your levers are the non-credit ones later in the article.
Which parts of a credit report matter most
The NAIC consumer article lists the five factor groups in a FICO insurance score and the weight each carries, as described by FICO:
| Factor | Weight | What it reflects | What you can do |
|---|---|---|---|
| Payment history | 40% | Whether past debts were paid on time | Pay on time every month; bring past-due accounts current |
| Outstanding debt | 30% | How much debt you carry now | Reduce card balances; the NAIC's tip is to keep balances as low as possible |
| Length of credit history | 15% | How long you have had credit | Keep old accounts open where there is no cost to doing so |
| Pursuit of new credit | 10% | Recent applications for new credit | Avoid unnecessary applications before you shop for insurance |
| Credit mix | 5% | The types of credit you hold (cards, mortgage, auto loans) | Little to do; do not open accounts only for the mix |
Those weights are FICO's own description of its insurance score as reported by the NAIC, and other scoring companies may weigh the factors differently. They show where effort pays off: on-time payments and lower balances account for roughly 70% of the weight.
Two other facts matter for what does not count against you. The NCOIL Model Act Regarding Use of Credit Information in Personal Insurance (the version posted in June 2025, which lists earlier readoptions in 2015 and 2020) says an insurer using credit may not treat as a negative factor:
- credit inquiries you did not initiate, or inquiries you made for your own credit information
- inquiries relating to insurance coverage, if they are identified as such on your report
- collection accounts with a medical industry code, if they are identified as such on your report
- multiple lender inquiries coded as mortgage or auto lending that occur within 30 days of one another, unless only one inquiry is considered
That list comes from a model act, so it applies only in states that have adopted a version of it. The NAIC's consumer article makes a similar point about account reviews, employment inquiries and promotional inquiries.
Hard inquiries versus soft inquiries
A hard inquiry is typically made when you apply for credit and can affect your score. A soft inquiry does not. The Consumer Financial Protection Bureau explains in its guide to hard and soft inquiries that soft inquiries include reviews of existing accounts by lenders or insurance companies, prescreening, employment screening and your own requests for your reports. They do not affect scores, and only you can see them on your own report.
For car insurance, that means two things.
- Applying for loans and cards just before you shop is the real risk. Hard inquiries from new credit applications feed the "pursuit of new credit" factor, which is 10% of the weight in the FICO insurance score as the NAIC describes it. If you are about to shop for car insurance, hold off on other credit applications where you can.
- How an insurer's quote request is coded is for the bureau and insurer to decide. The CFPB page confirms that insurer reviews of existing accounts are soft. It does not say how a pull for a new quote is classified. The practical check is to look at your own credit report after you shop: soft inquiries are visible only to you, and you can see whether any appear and how they are labeled. Our article on do car insurance quotes hurt your credit score? covers this in detail.
Your rights under federal law
Federal law gives you tools whatever your state. Three matter here.
An adverse action notice. Under the Fair Credit Reporting Act, an "adverse action" covers, among other things, an increase in any charge for insurance, existing or applied for, in connection with underwriting. When an insurer takes adverse action based on a consumer report, 15 U.S.C. 1681m(a) requires it to tell you, disclose the numerical credit score it used, identify the consumer reporting agency, state that the agency did not make the decision, and tell you of your right to a free copy of the report within 60 days and your right to dispute accuracy or completeness. The definition is in 15 U.S.C. 1681a(k). Our article on adverse action notices: what an insurer must tell you about a rate explains how that notice looks in practice, and whether the higher price you were quoted counts depends on the facts.
A free copy of your report. The Federal Trade Commission says on its free credit reports page that all three bureaus permanently offer free weekly reports at AnnualCreditReport.com, and that you are also entitled to an additional free report after an adverse action notice (request within 60 days).
A dispute that must be investigated. If you dispute an item with the credit bureau, 15 U.S.C. 1681i requires the agency to reinvestigate within 30 days of receiving your notice, extendable by up to 15 days if you send more information in that window, and to promptly delete an item that cannot be verified.
What to do, step by step
- Find out whether credit is used where you live. Check your state insurance department's website. If your state bans it for auto, skip to the non-credit levers.
- Pull all three credit reports. Use AnnualCreditReport.com, the free site the FTC points to. Read each line for accounts that are not yours, wrong balances, paid accounts shown as unpaid, and old items that should have aged off.
- Dispute errors in writing. Send the dispute to the bureau and also to the business that supplied the information, as the FTC advises. Keep copies. Remember the 30-day reinvestigation clock.
- Ask your insurer whether a score was used and which tier you were placed in. The NAIC suggests asking exactly that after getting a quote. If your price rose at renewal, ask what changed.
- Request a re-score at renewal after you have improved your report. The NCOIL model act provides that at annual renewal, on request, the insurer re-underwrites and re-rates the policy using a current report or score, and need not do so more often than once in twelve months. Check whether your state or insurer follows that rule.
- Ask about extraordinary life events. More below.
- Get quotes from several insurers. Use the same coverage on each; see how to compare car insurance quotes apples to apples.
- Apply the non-credit levers. See the list below.
- Recheck in six to twelve months. Credit changes slowly, so schedule the next comparison.
Extraordinary life events: asking for an exception
Some events damage credit without changing how someone drives. The NCOIL model act includes a section on extraordinary life circumstances that tells insurers to provide reasonable exceptions to rates, tiers or underwriting on written request when credit has been directly affected by one of these events:
- a catastrophic event declared by the federal or state government
- serious illness or injury, to you or an immediate family member
- death of a spouse, child or parent
- divorce or an involuntary interruption of legally owed alimony or support
- identity theft
- temporary loss of employment of three months or more resulting from involuntary termination
- military deployment overseas
- other events as determined by the insurer
The model lets an insurer require reasonable documentation and require that the request be made within 60 days of the application or renewal, and it calls for the insurer to inform you of the outcome within 30 days of getting sufficient documentation. These are the model's terms. Each state decides whether to adopt it and how, and insurers may follow their own policies where no law applies, so ask your insurer what it requires and by when. The NAIC's consumer article adds that many insurers will reconsider your premium after such an event if you ask.
If an error is corrected through the federal dispute process, the model also says the insurer should re-underwrite and re-rate within 30 days of notice and refund any overpayment calculated back to the shorter of the last 12 months or the policy period. Again, that is the model's provision, not a universal rule.
A worked example (hypothetical)
These numbers are illustrative only. A driver pays $1,900 a year after the insurer places her in a higher-priced tier because of her credit-based score. She orders her reports and finds a paid collection account still reported as open. She disputes it, the bureau deletes it, and she sends the result to her insurer with a request for a re-score at renewal. The insurer moves her up one tier and the renewal premium falls to $1,700, a $200 drop. She also gets two competing quotes; one is $1,550 and one $1,810. Moving to the cheaper insurer would save another $150 on top of the corrected score.
The lessons are not about the specific amounts. A single correction can change a tier. The insurers' scoring differs. And the order matters: fix the report, then ask for the re-score, then shop.
Levers that don't depend on credit
Credit is one rating factor of many. These apply in every state:
- Compare more insurers and bring in an independent agent. Prices for the same driver vary by company.
- Raise your deductible on collision and comprehensive, if you can afford to pay it after a claim.
- Drop coverage you no longer need on an older car; see when to drop collision and comprehensive on an older car: the math.
- Ask for every discount. Multi-policy, multi-car, good driver, paperless and defensive-driving discounts are common. See lowering the bill for a household with several drivers.
- Consider a telematics program. Usage-based programs price on how you drive, not on credit alone; read usage-based car insurance explained and check the program's rules before you enroll.
- Pay in full if you can. The paid-in-full discount and the absence of installment fees can be worth a meaningful share of the premium.
- Keep your driving record clean and avoid claims you can handle yourself. The renewal rate increase checker helps you see what changed at renewal.
- Review your coverage mix against a budget with how to prioritize coverage when your insurance budget is fixed.
Common questions
Will my rate drop as soon as my credit improves?
Not automatically. Insurers refresh the score on their own schedule, and the NCOIL model act, for example, allows a recalculation as seldom as every 36 months unless you request one at renewal. Ask for a re-score after your report has improved, and recheck quotes from other insurers at the same time.
Can an insurer cancel my policy because of bad credit?
It depends on the state. The NAIC says that in most states an insurer cannot use these scores as the sole reason to deny, cancel or refuse to renew a policy, and the state summaries above show some states are stricter. If you receive a notice, ask for the specific reasons and the state insurance department can tell you what is permitted.
What if I have no credit history at all?
The NCOIL model act says an insurer may not penalize an absence of credit information unless it treats you as otherwise approved by the commissioner, treats you as having neutral credit information, or excludes credit and uses other factors. Your state may differ; ask how the insurer treats a thin or empty file.
Does checking my own credit report hurt my score?
No. The CFPB lists your own requests for your reports as soft inquiries, which do not affect your scores. The FTC says the free reports are available weekly at AnnualCreditReport.com.
Key takeaways
- A credit-based insurance score predicts claims, not loan repayment, and is allowed in most states for auto insurance, with limits that vary; California, Hawaii and Massachusetts are among those that keep it out of auto pricing.
- Payment history and outstanding debt carry the most weight in the FICO insurance score as the NAIC describes it, so on-time payments and lower balances help most.
- Pull your reports, dispute errors (the bureau must reinvestigate within 30 days), then ask your insurer for a re-score at renewal.
- Ask about an exception after a major life event such as illness, job loss, divorce or identity theft; the NCOIL model lists the events and the timing.
- Shop several insurers, because models differ, and use the non-credit levers: deductible, discounts, telematics, paying in full and coverage choices.