You Won't Believe How Much Car Insurance Costs With Poor Credit

Auto insurance can cost more if you have poor credit. Drivers with lower credit scores are more likely to file claims, so they're considered a higher risk by car insurance companies. It's not a small difference in rates, either. If you have poor credit, it could be costing you thousands every year in insurance premiums.

Here's how much car insurance costs with poor credit

Drivers with poor credit pay an average of $4,145 per year for auto insurance. To put that in perspective, those annual premiums are:

• $1,128 (37.4%) more than the overall average for auto insurance
• $2,198 (112.9%) more than the average for drivers with excellent credit

There are a few states that don't allow car insurance companies to set rates based on your credit score: California, Hawaii, Massachusetts, and Michigan. But everywhere else, it's fair game.

The best car insurance companies for drivers with poor credit

Some car insurance companies punish drivers with poor credit more than others. If you have a low credit score right now, it's a good idea to pick a carrier that's more lenient about this. Here are the best car insurance options with poor credit and their average annual premiums (for drivers with poor credit):

1. USAA: $2,254
2. Geico: $2,707
3. Progressive: $3,162

While USAA is the most affordable by far, it's only available to military members and their families. If you don't meet the eligibility requirements, Geico and Progressive are both highly rated options for cheap car insurance, as well.

Keep in mind that these are just averages. The amount a car insurance company charges you also depends on other factors, including your age, location, and driving record. The only way to know which company has the lowest rates for you is to shop around and compare car insurance quotes.

How to improve your credit

There are many ways that poor credit makes life more difficult. One of them, as you've seen, is that it can make insurance much more expensive.

Fortunately, poor credit is also something you can fix. If you have a low credit score because of previous financial issues, here are the steps you can take to rebuild your credit:

• Get caught up on missed payments. If your payment is past due on any accounts, such as credit cards or loans, get caught up ASAP. Your payment history is the No. 1 factor in your credit score. The longer an account is past due, the more damage it does to your credit.
• Always pay on time going forward. Each on-time payment builds your payment history. It doesn't happen overnight, but after six to 12 months of on-time payments, you'll likely see a positive impact on your credit score. If you have trouble with this, consider setting up automatic payments or a monthly alert on your phone.
• Work on paying down credit card debt. Another key factor in your credit score is how much of your credit you're using. This is called your credit utilization. If you have your cards maxed out, or if you're using a large portion of their credit limits, that lowers your credit score. Come up with a plan to pay off your credit card debt -- it's good for your credit, and your finances as a whole.

Make sure to monitor your credit to see if it's going up. There are plenty of free tools you can use online to get your credit score and track your progress. Many credit card companies offer tools like these for their cardholders, so check if you have access to one through any credit cards you have.

If you consistently pay on time and don't charge too much to your credit cards, your credit score will improve. It could take some time, especially if you've had any bankruptcies or charged off accounts. But these habits will pay off with a higher credit score, and that will help you get much lower car insurance rates.