Do You Absolutely Need Credit to Get Car Insurance?

You might not need good credit or a credit history at all to get car insurance, but here is the sobering part -- expect to pay far more than a person with good credit. Boosting your credit score pays off as long as you can put your car shopping on hold for a few months. If you apply for car insurance and the company denies you because of credit problems, you might never know credit issues were the cause.

Identification

You generally do not need a credit history to acquire some amount of car insurance. However, over 90 percent of car insurance underwriters use credit reports when calculating premiums, according to GMAC Insurance. They also factor in other variables to set your rate, such as driving record, gender, vehicle make and model, location and age.

Effect

A low credit score or none at all might raise your premium up to 50 more than if you had good credit, according to credit education and referral company Carreon and Associates, though bad credit alone may not be enough to deny coverage. Most insurers use a formula similar to that of the credit reporting bureaus, but give categories different weight, which can give drastically different results.

Rejection for Credit Reasons

If the insurance company rejects you because of information contained in your credit file, they do not have to notify you of this reason after a 2007 Supreme Court decision, according to Sandra Block of USA Today. The 2011 Dodd-Frank Wall Street regulatory reform bill might change this. The bill passed both Chambers of Congress and as of March 2011, the final regulations of the legislation are still only proposed. The final version of the bill might require insurance companies to notify you of a rejection based on credit and give you a free FICO credit score.

Tip

Start building your credit history now and you can get a credit score within six months. A good place to begin is a national bank that offers a secured credit line, or a department store card. You will probably have to pay an annual fee and a high interest rate -- somewhere over 20 percent -- but this could save you money on insurance as long as you do not carry a balance. Limit outstanding debt and meet minimum payments every month to build your score faster. Some factors, such as length of credit history, only come with time.