If you have poor credit, you’re paying an average of $2,006 more per year just to insure your car, not because of how you drive, but because of your credit score. That’s a full car payment. That’s a vacation. That’s money quietly drained from your pocket every single year for a problem that’s completely fixable.
This is the part of bad credit most people never see coming. Everyone knows a low score makes loans expensive. But the insurance penalty? It sneaks up on you, and it compounds fast.
How Much More Does Bad Credit Cost You on Car Insurance?
In most states, insurers use a credit-based insurance score when setting your premium. According to the NAIC, about 95% of auto insurers use credit-based insurance scores in states where it’s legally allowed. The score draws from the same credit report data as your regular credit score: payment history, outstanding debt, length of history, credit mix, but it’s designed to predict claim likelihood, not loan repayment.
A driver with poor credit pays 76% more for the exact same coverage as a driver with good credit, and more than twice as much as a driver with excellent credit. No accidents. No tickets. Just a credit score.
How Does Poor Credit Affect Car Loans and Other Costs?
Car insurance isn’t the only hit. If you’re financing a vehicle (which most Americans are), your credit score also controls your auto loan rate.
Take a $25,000 used car loan over 60 months. A prime borrower at ~9% pays significantly less than a deep subprime borrower at ~21% who pays closer to $675/month. That’s hundreds of dollars more over the life of the loan in extra interest alone.
Stack both penalties together:
- Insurance overage: ~$2,006/year
- Auto loan interest overage: ~$700–$2,100/year
- Combined extra costs: $2,700+ per year
That’s the real compounding effect of poor credit, across just two financial products most Americans already have. (Actual costs depend on your credit score, lender, insurer, loan amount, location, and other individual factors. These figures are illustrative averages based on national data.)
What Is the 5-Year Cost of Doing Nothing?
One year of overpaying is painful. Five years is a hole that’s genuinely hard to climb out of.
Over five years, you pay more than $10,000 in extra insurance premiums alone — from inaction. Not one dramatic expense, but a slow, steady drain baked into “normal” monthly bills.
Does Your State Allow Credit-Based Insurance Pricing?
Not every state does — and where you live changes this math significantly. Per Bankrate and MoneyGeek’s 2026 state-by-state analysis:
States that fully ban or significantly restrict credit-based auto insurance pricing:
- California
- Hawaii
- Massachusetts
- Michigan (places significant restrictions on how credit can be used)
States with partial restrictions:
- Maryland, Oregon, and Utah limit how heavily insurers can weight credit scores.
For everyone else (drivers in the other 43+ states), credit-based pricing is fully in play. MoneyGeek’s analysis found the national average credit-score penalty can be over $2,100/year, with certain states facing even higher margins just for having poor credit. In 17 states and Washington, D.C., drivers with poor credit pay at least double what good-credit drivers pay for the same coverage, per Bankrate’s data.
If you’re not in one of the handful of protected states, your credit score is almost certainly affecting your insurance bill right now.
An Illustrative Example: What Credit Improvement Could Look Like
Compliance note: The following is a fully illustrative, hypothetical scenario. “Marcus” is not a real person or Ava member. Numbers are based on national averages and are intended to show how credit profile improvement could affect costs, not to imply or guarantee specific score increases or financial results. Individual outcomes vary significantly based on credit history, location, insurer, lender, and other factors.
Meet Marcus, a 30-year-old driver in Ohio with a clean driving record and a credit score in the poor tier. Here’s what his car-related bills could look like:
- Car insurance (full coverage): ~$4,200/year
- Used car loan ($20,000, 60 months): Subprime interest rates leading to higher monthly payments.
If Marcus works diligently on building his credit over time — paying every bill on time, reducing utilization, and establishing positive payment history — and transitions into a stronger credit tier, his potential savings could scale across both his auto premium and future loan refinancing options. Credit profile improvements have direct, measurable consequences on the bills you are already paying.
What to Do Next: Start Improving Your Credit Before Renewal
Your insurer re-checks your credit-based insurance score at renewal, typically every 6 or 12 months. That’s your window. Here are some of the highest-impact moves to make before your next renewal date:
- Pay every bill on time, without exception. Payment history is the single most heavily weighted factor in credit scoring models. Set up autopay. Even one 30-day late payment can meaningfully drop your score.
- Reduce credit card balances aggressively. Credit utilization is another massive component of your score. Getting below 30% helps, but keeping balances below 10% is where the most significant positive impact typically occurs.
- Get rent and utility payments reporting. Most landlords and utility companies don’t automatically report your positive history, meaning bills you already pay don't help you build credit. Utilizing a reporting program helps add this positive history to your file.
- Dispute any errors on your credit report. Pull your free reports at AnnualCreditReport.com and look for accounts you don’t recognize, incorrect late payments, or duplicate entries.
- Add a dedicated credit builder product. A credit builder card or savings account creates a new tradeline, adds positive payment history, and improves your credit mix without requiring a hard credit pull.
Where Ava Comes In
If you’re serious about building your credit profile, and working toward lowering your long-term car-related costs, Ava is built specifically for this. Ava is a credit-building app designed to help you manage multiple credit factors simultaneously with no hard credit check, no interest on builder products, and no upfront deposit required.
With Ava, you can access:
- A Credit Builder Mastercard: A virtual card that reports on-time payments to all three major bureaus (Experian, TransUnion, Equifax) and helps optimize your credit utilization.
- A Save & Build Account: A 12-month secured savings loan that builds installment payment history while you save money. Members receive back the exact amount they successfully contribute to their schedule (excluding applicable origination fees).
- Rent & Utility Reporting: Up to 24 months of past rent and utility payments reported directly to TransUnion, turning bills you’ve already paid into a documented history of financial reliability without requiring landlord enrollment.
The cost of staying stuck with bad credit is real. The question is whether you want to keep paying the credit penalty on your insurance year after year, or start taking control of your financial profile today.
Data sources: Bankrate’s 2025 True Cost of Auto Insurance Report (February 2025); MoneyGeek 2026 Credit Score Tax Analysis (April 2026); Experian State of the Automotive Finance Market, Q1 2025; NAIC Credit-Based Insurance Scores (updated March 2026). All figures are national averages. Individual rates vary by state, insurer, lender, credit profile, vehicle, and other factors. The hypothetical scenario (“Marcus”) is fully illustrative and does not represent any real individual, Ava member, or guaranteed outcome.
