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Why does a poor credit score affect car insurance?
If you’ve ever taken out a loan or credit, you’ll have a credit score which allows lenders to see whether or not you’ve repaid your debts on time. But while it’s well-publicised that a poor score can affect your chances of getting a mobile phone deal or mortgage, in some cases, it can also impact your car insurance.
Will insurers check my credit score?
Insurers will usually check your credit report primarily for admin purposes. This simply helps them verify personal details such as your name, age and address. This type of check is called a soft search and doesn’t affect your report in any way.
However, there is another type of search that insurers can carry out called a hard search. This typically happens if you’ve asked to pay for your car insurance in monthly instalments.
Hard searches allow insurers to dig a little deeper into your credit history so they can see how well you manage debt. They also leave what’s called a ‘footprint’ on your file so other lenders can see what you’ve applied for. Lots of applications in a short space of time can make it look like you’re struggling with money and need credit.
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How does a poor credit score affect car insurance premiums?
How your credit score affects your car insurance will depend on how you want to pay for it.
If you want to pay for cover annually (in one lump sum) then your credit score won’t affect your premium. You’ll only pay the price you’re quoted.
If you ask to spread the cost and want to pay monthly, then your credit score can affect your premium and you could pay more. This is because a poor credit score can be an indication that you’ve struggled to pay back money in the past. For insurers, this increases the risk to them as it could mean you miss payments.
Does a poor credit score increase the cost of car insurance?
The short answer is yes, a poor credit score can increase costs in a couple of ways.
Firstly, if you want to pay monthly, then you’ll usually pay interest on top of the actual premium. Having a poor credit score also often means you’ll be charged higher rates of interest, compared to someone with a good or excellent rating. This is because of the increased risk of defaulting (non-payment).
Secondly, statistics show that drivers with poor credit scores are more likely to make a claim. Some insurers will take this into consideration and adjust your premium accordingly or even refuse you insurance in extreme cases.
In addition, a poor credit score can increase the cost of car finance.
How can I get cheap car insurance with poor credit?
A poor credit score shouldn’t be a barrier to getting a good deal on your car cover. The good news is that insurers base premiums on a range of factors and not just on your credit rating, so there are practical things you can do to keep costs low. For example:
- Pay for your policy upfront – rather than spreading the cost with your insurer, consider an alternative method such as paying for the policy with a credit card. Naturally, you’ll still be expected to make repayments on time but it means you’ll pay the price you’re quoted.
- Add a named driver – adding a more experienced driver to your policy can help lower premiums and can be particularly beneficial for younger drivers.
- Improve car security – keeping your car somewhere safe can help keep premiums low, especially if it’s kept in a locked garage. If that’s not an option, consider boosting its internal security with an immobiliser.
- Cut back on mileage – if you can, try to reduce the number of miles you cover or be as accurate as you can. Overestimating your mileage can mean you end up paying more than you need.
- Consider all policy types – compare all policy types and don’t assume that third-party cover is always going to be the cheapest option. More often than not, comprehensive cover works out cheaper depending on your circumstances.
- Increase your excess – almost all insurance policies have an excess, this is the amount of money you contribute towards a claim. You can lower your overall premium by increasing this amount but remember, you’ll need to pay for a claim to go ahead so it still needs to be affordable.
- Build up your no claims bonus – this can take time but for every year you drive without making a claim, you’ll earn a discount on the next year’s policy. With that in mind, think carefully about what you claim for.
Don’t forget that if you decide to pay for your policy monthly, it’s important to keep up with your repayments. Over time, this can help improve your credit score as it will show good debt management.
Compare car insurance quotes
Whatever your credit score, comparing quotes is one of the most effective ways to save money on your car insurance. It means you can see at a glance who’s offering what and for how much. At NimbleFins, we’ve teamed up with Quotezone so that you can compare leading UK insurers from the comfort of home in just a few minutes.
And similarly, your credit score can affect your home insurance as well. Read more about that here.