Can a Low Credit Score Make You Pay More on Car Insurance?

From mortgage rates to credit card applications, credit scores wield a lot of power in our financial lives. Sometimes, in fact, they influence things that at first glance don't even seem related to your history of borrowing money -- like car insurance.

While, yes, credit scores have little to do with your ability to drive, many car insurance companies look at your credit when determining your premiums. Numerous studies have backed up the correlation between poor credit and the number of claims filed per year, which supports the idea that if you're a responsible borrower then you're likely responsible on the road, too.

Whether or not that's true in every case, credit scores are certainly one factor many car insurance companies look at. But it might be shocking when you realize how much weight these three-digit numbers can hold.

Drivers with poor credit pay double for car insurance

Drivers with poor credit scores pay an average of $3,622 for car insurance nationally, while those with excellent credit pay $1,703. That means, drivers with poor credit are paying more than double ($1,919, or roughly 112.7% more) for car insurance than what drivers with excellent scores are paying.

In some states, the difference is even more significant. For example, in Connecticut, drivers with excellent credit pay on average $2,001 for car insurance, while drivers with poor credit pay 143.4% more ($2,869) for an average of $4,870. Meanwhile, drivers with poor credit in New York are paying on average $5,685 for car insurance, while those with excellent scores are paying $2,132 -- a discount of about 62.5%.

In contrast, the difference in some states isn't as wide, such as in Indiana, where drivers with excellent credit pay $1,232 on average, while those with poor credit pay 88.6% more ($1,092) at $2,324. And in a few states, it's actually prohibited to use credit scores to determine car insurance premiums at all, such as in California, Hawaii, Massachusetts, Michigan, and Washington.

How to get cheap car insurance when you have poor credit

Paying more than double for car insurance because of a poor credit score isn't fun, especially if you're a safe and responsible driver. Fortunately, there are a few ways you can try to get a lower rate.

One is to shop around for car insurance companies and find out which will offer you the best rate for your coverage. Focus especially on those companies known for offering decent rates to people with poor credit. You could also try usage-based coverage, which gives discounts for good driving, or try a pay-per-mile insurance plan.

Even if these options resulted in lower premiums, you would save even more by improving your credit score. It's easier said than done, but bringing up your credit score from poor to fair or good could go a long way in lowering your premium. If possible, pay down credit card debt and keep credit card usage to no more than 30% of your total credit.

One way to build credit is to get a secured credit card. These cards require an upfront deposit -- usually about as much as the card's credit limit -- which serves as collateral if the cardholder defaults. They're less risky for credit card companies, which makes them good credit-builders for those with poor scores. It could take some time to build up your score, but with good credit card practices, you could improve your credit over time and end up paying less for car insurance.