Car Insurance for Poor Credit: All You Need to Know About

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Auto insurance, by default, seems complex and confusing. It doesn’t help that each insurance company offers a different premium price. However, every state and district has laws that make it compulsory for vehicles to have insurance. Drivers, too, require to be covered by liability insurance. But like every other financial aspect, insurance also considers credit rating when determining the premium cost. 

In fact, statistics show that a person with bad credit has to pay around 130-160% extra as a premium compared to drivers with a good credit score. Though the credit score is just one aspect, it is still an important deciding factor. 

Let’s read how bad credit affects auto insurance and how you can lower the premiums and find affordable car insurance. 

Bad Credit and Auto Insurance

The Federal Trade Commission (FTC) report says that drivers with poor credit are more likely to file claims. The report has found a correlation between credit rating and the frequency of insurance claims. The insurance companies mark these customers as high-risk. To avoid losses and ensure financial safety, the companies increase the premium. It minimizes their risks. 

A higher credit is an indication that the insured is capable of paying for minor repairs and damages instead of filing a claim. The premium goes down automatically. 

However, the Consumer Federation of America has said that using the credit score to calculate vehicle insurance is a discriminatory practice. Some states in the US (Hawaii, California, Michigan, and Massachusetts) have banned auto insurance companies from using credit ratings for auto insurance. Yet, states like Arkansas and South Dakota have the highest increase in the average insurance cost for people with poor credit. 

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Ways to Achieve Low-Cost Auto Insurance Premium Despite Bad Credit 

Finding the cheapest automobile insurance may be a tough deal with bad credit. But you can still find low-cost auto insurance with some research. Don’t settle for what’s offered to you. Search for more options, and you are sure to find something good. 

  • Go for Telematics-Based Calculation 

Insurance companies that don’t use credit rating or don’t give it much importance tend to consider other factors when deciding the premium. The telematics-based calculation is where the insurer will assess your driving behaviour from the past to find out whether you are a safe driver or a risky driver. Those with a good driving record can get vehicle insurance for an affordable premium.  

  • The Right Coverage Plan 

All insurance plans are not the same. The coverage type you choose should also depend on the car you own. How old is the car? What’s the car’s condition? For how many years do you continue to use it? Sometimes, it’s not worth paying a high premium for an old car. You shouldn’t be uninsured, but you don’t need the same coverage plan as a new car. 

  • Auto Insurance Discounts 

Car and automobile insurers offer various discounts at times. Be it a membership discount or bundling discount, look out for options where you can reduce the overall cost of the insurance cover. Consumer Watchdog says that those who qualify for a good driver discount can get up to 20% off. 

  • Talk to Insurance Agents 

It’s not easy tracking the premiums and plans of so many insurance companies. Hire the cheapest multi-car insurance company in the region to find the best deals for you. Insurance agents and third-party companies can get you multiple quotes from different insurance companies and help you make the right decision. It is time-saving and less stressful to hand over the job to an expert. 

  • Improve Credit Score 

Well, yes. Improving your credit score has many advantages. It becomes simpler to get a loan if your credit score is better. Such things take time, so you can work on improving your credit score even after getting automobile insurance. 

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Tips to Improve Credit Score 

It doesn’t help if we simply ask you to improve your poor credit score without sharing any tips. Here’s how you can do it. 

Make Minimum Payments: Pay the minimum balance amounts on your credit card bills and loan interests. 

Pay Before the Due Date: This is very important as a late fee will be added to the due amount if you delay payments. Automate the monthly payments to avoid the late fee. 

Be Careful with the Cards: Credit cards are easy but remember that you have to pay back the spent amount with interest. Use them carefully. 

Reduce Credit Usage: Don’t spend more than 30% of the available credit limit unless there’s an emergency. 

Clear Smaller Credits at Once: Talk to the credit card companies and clear the outstanding amounts for small dues in one go. They might waive you the processing fee. 

Spend more time finding affordable auto insurance despite the bad credit. You’ll save money in the long run.

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