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Bad Credit Auto Insurance

Believe it or not, it is perfectly legal for insurance companies to take a driver’s credit history into account when assessing risk and auto insurance rates. In fact, nine out of every ten auto insurance companies base their auto insurance rates, in part, on a driver’s credit history. The practice of using driver’s credit histories to determine auto insurance was not very common ten years ago. The practice has become more common, however, over the past 5-6 years. What this means is that drivers with bad credit (whether they are excellent drivers with excellent driving histories or not) will pay the price. While bad credit definitely does not make you a bad driver, insurance companies have what they believe is solid proof that bad credit does increase the likelihood of a claim being made by a policyholder with blemishes on his credit. According to the Insurance Information Institute (iii), drivers with bad credit file 40% more claims that drivers with good credit. This means that insurance companies are likely to charge drivers with bad credit 20-50% more than they charge drivers with good credit. What is even more disturbing is that drivers with good credit can have an accident or two in their driving histories and they will still pay lower rates than drivers with bad credit who have never had an accident. Here’s why: According to a study by the Casualty Actuarial Society (CAS), drivers with good credit and past driving violations or accidents have (much) better loss ratios than drivers with bad credit and clean driving records. In addition, a study by the University of Texas found a "significant relationship" between credit scores and filed insurance claims.Much like a credit score, an “insurance score” is provided by the credit reporting agencies, and it determines your “insurance worthiness.” Auto insurance companies do not assess your insurance worthiness based on a thorough assessment of your credit history. The credit reporting agencies provide the insurance score only and the auto insurance companies take it from there.

If you have bad credit and you are shopping around for a new auto insurance policy or if you are planning to switch auto insurance providers, there are several ways to avoid paying high insurance rates. If you already have good rates with your current auto insurance provider, its best to stick with them until your credit rating improves. If you would still like to switch providers or if you are in the market for a new policy, there are still a few auto insurance companies available that do not use credit data when underwriting new policyholders.  You can get free quotes from these insurance companies here at AutoCarInsurance.org. Simply enter your zip code in the box above to begin.