Drivers With Poor Credit Pay 76% More for Insurance, but Should They?

Having bad credit can make life challenging. You may not be able to buy a house or even qualify for a decent auto loan. Once you do obtain a car, then you have to deal with the cost of insurance. According to Bankrate’s 2025 True Cost of Auto Insurance report, on average, car insurance rates are up 12 percent across the board. 

While all drivers are feeling the strain of higher rates on their budgets, drivers with poor credit get hit extra hard. On average, drivers with poor credit pay 76 percent more for full coverage insurance than drivers with good credit. 

Struggling with credit isn’t rare. In fact, according to Bankrate’s 2025 Credit Card Debt Report, 48 percent of credit cardholders carry debt from month to month. For those struggling financially and working hard to improve their credit, it can seem like a catch-22. You make some gains only to find out you are required to pay extra for insurance. It leaves many drivers frustrated, but there are organizations advocating that credit history should not matter when it comes to buying auto insurance.

What does credit history have to do with car insurance?

In every state, except California, Hawaii and Massachusetts, insurers are allowed to consider your credit history when pricing your car insurance policy. Michigan places restrictions on how insurers can use credit when setting premiums. However, the exceptions to this rule are so broad that most drivers can expect their credit history to have some effect on what they pay for their coverage. 

An insurance company looks at credit history a little differently than, say, a credit card or mortgage company would. Insurers use something called a credit-based insurance score, which is calculated differently than a FICO score. Both look at the same credentials — payment history, outstanding debt, length of credit history, recent credit applications and credit mix — but a credit-based insurance score weighs payment history more heavily. After all, an insurance company wants to know if you’ll pay your premium on time, and your payment history could help give them that insight. 

A poor credit history is also an “effective predictor” of whether a driver will file a claim, according to a 2007 study from the Federal Trade Commission. Filing claims signals risk to an insurance company, and with insurance, higher risk typically results in higher premiums. 

Looking for car insurance with bad credit? Where you live makes a difference

In some states, drivers with poor credit are paying thousands for coverage. In Florida, drivers with poor credit are looking at a four-figure insurance bill regardless of whether they choose minimum or full coverage. In fact, drivers with poor credit histories in Florida and New York pay more for annual minimum coverage ($2,826 and $3,143 on average, respectively). These rates are higher than what drivers with good credit histories pay for full coverage ($2,638) on average nationwide. 

In 17 states, drivers with poor credit histories pay north of $5,000 per year for a full coverage policy. Meanwhile, drivers in Idaho with poor credit histories pay less than the national average for full coverage. However, in Idaho, the difference between the cost of full coverage for a driver with poor credit compared to a driver with good credit is still significant; drivers with good credit history pay an average of $705 less per year for full coverage than drivers with poor credit history.

South Dakota has the most significant cost gap between drivers with good credit history and those with poor credit history. Drivers in the Mount Rushmore State pay 148 percent more for full coverage if they have poor credit history, compared to those with good credit history. Texas trails closely behind, with drivers with poor credit histories paying an average of 138 percent more for full coverage than those with good credit histories. 

North Carolina is the most forgiving in terms of pricing. Drivers with poor credit history pay just 39 percent more than drivers with good credit history for full coverage, and 24 percent more for minimum coverage. 

Is it fair for car insurance companies to look at credit history? 

It’s been the industry norm to consider a driver’s credit history when allowed. But, does that make it fair? Some would argue that it isn’t.

The auto industry claims that people with poor credit are more likely to be bad drivers; however, DeLong says there is insufficient evidence to back that up. Credit reports can also be inaccurate, dinging a driver for having bad credit because of a reporting error. DeLong also points out that bad credit doesn’t always indicate that a policyholder will miss a payment: “Someone could have poor credit because they lost their job during the COVID-19 pandemic and struggled to make ends meet, or because they went through a medical emergency, or because they grew up in poverty. ” 

The financial burden isn’t spread evenly across all drivers with poor credit. According to DeLong, factoring credit history into car insurance rates disproportionally harms Black and Latino drivers. “Because of past and present discrimination, these drivers are more likely to have poor credit and have lower average credit scores. So when insurers charge more based on credit, they get hit especially hard and have to pay more, even though they can afford less.”

The Consumer Federation of America is actively advocating to ban the use of credit history in insurance pricing, but has been met with resistance from the insurance industry. Currently, only a handful of states implement this ban. Additional states have made the effort to propose changes and found no success. For example, in 2022, Insurance Commissioner Mike Kreidler made a case to ban the practice in the state of Washington but failed. However, there may be some hope on the horizon. In January 2025, a new bill was introduced by Washington Insurance Commissioner Patty Kuderer to study how credit-based factors influence premiums and explore alternative factors that insurers could use in place of credit history. This proposed review could shape future regulation.

Improve your credit, save on car insurance 

Consumer credit drives the U.S. economy so it’s no surprise that your credit score plays a role in what you can buy and how much it will cost to buy it. Most Americans rely on credit cards, rather than cash, to pay for their everyday needs and lifestyle. According to Bankrate’s 2025 Credit Card Debt Report, more than half (53 percent) of credit cardholders who carry debt from month to month have been carrying a balance for at least a year. Nearly half (47 percent) of cardholders who carry a balance month to month on their credit cards say the primary cause was an emergency or unexpected expense. Of that group, 9 percent listed car repairs as one of those expenses.

While your credit card usage is just one factor that plays into your actual credit, it accounts for 30 percent of your FICO score. Understanding how your credit works is the first step to improving your score and creating more financial opportunities for yourself.

Whether or not it’s fair, for the majority of drivers, credit will play a part in what you pay for your coverage. The good news is just because your credit isn’t outstanding now doesn’t mean you’ll be stuck with a higher rate forever. We asked Ted Rossman, Bankrate senior industry analyst, on his top tips for how to build up your credit. 

“A good first step is to find out where you stand,” says Rossman. “You can get free credit reports at AnnualCreditReport.com and free credit scores from Experian.com and MyFICO.com.” You may also be able to check your credit rating through your credit card issuer or bank for free, according to Rossman. Once you have a credit report on hand, he suggests looking it over for any errors: “The Federal Trade Commission says about 1 in 5 Americans have errors on their credit reports. Some of these are really significant. If you find a mistake, dispute it with the relevant credit bureaus (Experian, Equifax or TransUnion).” 

Building credit can take time, but the results can be worthwhile. Staying on top of your bills, keeping your debts low and showing you can successfully manage various types of credit over the long haul can help improve your credit. However, in a pinch, there are some quicker steps to take. Rossman suggests signing up for a free program like Experian Boost: “With your permission, [it] looks at your bank account for certain streaming, utility and rent payments that haven’t historically counted in credit scores (but now can count, in some instances).”  

Additional Rossman-approved ways to improve credit include: 

• Get on a parent’s credit card: Joining a parent’s credit card as an authorized user and piggyback off their — hopefully — positive credit history.
• Sign up for a secured credit card or credit-builder loan: Having a secured credit card or credit-builder loan can add some positive information to your credit report.
• Lower your credit utilization ratio: Your credit utilization ratio is the credit you are using divided by the credit you have available, expressed as a percent. “FICO says many of the people with the best credit scores keep this ratio under 10%. It’s a sliding scale, essentially — 5% is better than 25% which is better than 45% and so on.,” says Rossman. 

Methodology

Bankrate utilizes Quadrant Information Services to analyze January 2025 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a single, 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:

• $100,000 bodily injury liability per person
• $300,000 bodily injury liability per accident
• $50,000 property damage liability per accident
• $100,000 uninsured motorist bodily injury per person
• $300,000 uninsured motorist bodily injury per accident
• $500 collision deductible
• $500 comprehensive deductible 

To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2023 Toyota Camry, commute five days a week and drive 12,000 miles annually.

These are sample rates and should only be used for comparative purposes.

Credit-based insurance scores: Rates were calculated based on the following insurance credit tiers assigned to our drivers: “poor, average, good (base) and excellent.” Insurance credit tiers factor in your official credit scores but are not dependent on that variable alone. Four states prohibit or limit the use of credit as a rating factor in determining auto insurance rates: California, Hawaii, Massachusetts and Michigan.