Minimum Coverage
Monthly Premiums
New Drivers
No Credit
No Credit
If you have bad credit or no credit, auto insurance could cost you more and be harder to get because insurance providers see a connection between a customer's credit history and the likelihood they might file a claim. "More than 90% of auto insurance providers evaluate credit because it's been proven to be an excellent predictor of risk," says Jeff Junkas, spokesman for the American Auto Insurance Association.
Some insurance providers, typically for auto and home, consider credit history in determining whether to issue or renew an auto insurance policy -- and the amount of coverage they'll provide. Insurance providers use a consumer's auto insurance score. This score predicts how often you will file a claim and if it will be expensive. It's based on payment history, bankruptcies, collections, outstanding debts and length of credit history, according to the AIA. The only inquiries that affect the score are the ones the consumer makes.
Bad Credit
Insurance providers get auto insurance scores from the three major credit bureaus: TransUnion, Experian, and Equifax. They also receive scores from Fair Isaac, the leading maker of credit scores, and Choice Point, a leading provider of identification and verification services for the business and government sector. Some insurance providers get your credit report and put it through systems that calculate their own proprietary auto insurance scores.
However, credit is only one variable added to the overall mix to underwrite or price auto insurance polices, says Junkas. He says other variables considered include driving record, claims history, location and gender.
What you can do
State and federal laws provide some exceptions for bad credit or no credit, says Junkas. Many state laws forbid using the consumer's credit as the sole factor on whether you get auto insurance. Some states consider extenuating circumstances such as a job loss or a medical situation. Experts stress checking your credit report so you know what's in it and fixing any errors. Reports can be retrieved for free from the three major credit bureaus.
An estimated two-thirds of the auto and home auto insurance carriers who do not have their own score use ChoicePoint's auto insurance score, says John Wilson, assistant vice president of analytics at ChoicePoint.
The same methods to improve your FICO credit score can be used to enhance your auto insurance score:
- Pay bills on time.
- Keep balances low.
- Apply for credit only as needed.
- Shop around.
Call your state auto insurance department or insurer to learn if your credit is used. Also, find out how often the insurer looks at credit history, how the auto insurance score will be factored into the overall application or renewal, and how you can improve your score.