08 January 2025
Does my credit score affect car insurance?
6 minutes
Credit scores can help banks, mortgage lenders, and credit card companies decide whether or not to lend you money. In short, the higher your score, the less risky you’ll appear when you apply for credit.
But does your credit score affect car insurance? The short answer is yes, it can.
Here, we explore the relationship between credit scores and car insurance, the other factors car insurance providers consider when giving you a quote, and how to improve your credit rating for better insurance rates in the future.
The relationship between credit scores and car insurance
First, it’s helpful to note that no one but you can see the credit score held by the UK’s three credit reference agencies: Experian, Equifax, and TransUnion. Your score gives you an idea of how likely you are to be accepted when you apply for credit.
Instead, what matters is your credit report, which is a record of your credit history that includes details about your credit accounts, payment history, and other financial information.
Car insurance + credit reports: Soft search vs hard search
When you compare car insurance quotes, insurance providers will do a “soft search” on your credit report. They do this to verify that the information you’ve given them is correct and reduce the risk of fraud. Only you’ll be able to see this on your report (it won’t show up for other companies when they check it), and it won’t impact your score.
Once you’ve found a car insurance quote you like, complete the application, and get accepted, you’ll usually have two options. You can pay for it in one lump sum (almost always the cheaper option), or you can choose to make monthly repayments.
If you go for the annual lump sum, your credit report won’t be looked at again.
However, if you opt to repay it monthly, you’ll enter into a credit agreement with the car insurance provider and be charged interest each month on top of the premium cost. As a result, the provider will check your credit report in more detail. To do this, they’ll carry out a “hard search”.
Hard credit search: Why do car insurers check my credit report if I pay monthly?
If you want to pay your car insurance premium monthly, your insurance provider will typically do a “hard search” on your credit report. This lets them examine your credit history in more detail to understand how you’ve managed credit in the past.
They’ll use this information alongside their other criteria (more on that below) to score you as an applicant. Essentially, they want to know that you have a track record of reliably making your repayments on time before deciding to take you on as a customer.
Note: A hard search will appear on your credit report, and other lenders will be able to see it. It also stays on your report for two years and could potentially lower your score (although that should only be temporary).
However, if you make several car insurance applications in a short space of time, all involving hard credit checks, it could damage your score as it may look like you’re desperate for credit.
Can paying monthly for car insurance improve my credit score?
Potentially, yes. Paying your car insurance bill on time each month could help improve your credit score. That’s because monthly car insurance payments can be reported to credit reference agencies, and on-time payments are a great way of showing that you’re a reliable borrower.
However, making late payments (or missing them altogether) could harm your credit score, and your provider could cancel your car insurance policy.
To avoid this, consider setting up a Direct Debit to ensure your monthly payments are made on time.
Does my credit history affect how much I pay monthly for car insurance?
In other words, does a bad credit score affect car insurance cost?
The answer is yes, it can. If you have a poor credit history with several late or missed payments on your file, a car insurance provider might decide to charge you more interest to offset the risk that you’ll do the same with them. This can make your monthly payments more expensive.
Some insurance providers also consider people with bad credit as more likely to make car insurance claims. Again, this can drive your premiums up.
Can you get car insurance with bad credit?
Yes, you can get car insurance with bad credit. It can be a little trickier and more expensive, and your options may be limited, but it’s not impossible.
Can you be refused car insurance for bad credit in the UK?
Yes, you could be refused car insurance due to a poor credit score. However, there are a lot of car insurance providers out there, and each one has a different appetite for risk. Working with an experienced insurance broker like Howden can help you find the right fit for your situation.
What other factors do insurers consider for car insurance quotes?
It’s not just your credit history that can affect how much you pay. When you apply for car insurance, the quote you receive is also based on the following factors:
- Your age: Younger drivers tend to be less experienced and, therefore, at higher risk of having an accident. Your premiums decrease as you get older and gain experience behind the wheel.
- Your address: Some postcodes are safer than others, and crime rates and accident statistics for your area will be taken into consideration.
- Where you park at night: Is your car in a garage overnight? A private driveway? Or on the street? Generally speaking, the safer your car is while you’re sleeping, the cheaper it will be to insure. Read more: Where Should You Park Your Vehicle at Night?
- Your job: Some professions attract higher premiums than others. Research by MotoringResearch.com found that drivers, chefs, and bar staff often pay more for car insurance, while mechanics, designers, and engineers pay less.
- Your driving history: If you’ve had an accident or been pulled over for careless driving, you’ll often be seen as a riskier driver, increasing the cost of your premium.
- The make and model of the car: Insurers place cars into one of 50 groups based on features, performance capabilities, how easy they are to repair, and the cost of replacement parts. A Group 1 vehicle (for example, a Skoda Fabia) would be the cheapest to insure, while a Group 50 car (like a Jaguar XE) would be the most expensive.
How to improve your credit score for better insurance rates
There are several things you can do to steadily improve your credit score over time:
- Get on the Electoral Roll: Registering to vote in the UK could slightly boost your credit score. That’s because lenders use the Electoral Roll to verify your identity, which helps them avoid the risk of fraud and identity theft. So, if there’s an official record of you living at your address, it counts in your favour.
- Pay bills on time: The most significant thing you can do to improve your credit score is pay your bills on time and in full each month. This helps show lenders you're a reliable borrower, capable of responsibly handling credit.
- Check your credit report regularly: Take the time each month to review your credit report. Even small mistakes, such as typos, can harm your credit score. If you spot a mistake, contact the lender or provider reporting the incorrect information and ask them to change it.
Credit score car insurance FAQs
Will a CCJ affect my car insurance?
A County Court Judgment (CCJ) is a formal record of a debt you owe that required court action. It's kept on your credit file for six years unless you pay the full amount within a month. Having a CCJ on your credit report can make you seem risky to car insurance providers, and they might charge you more interest if you want to pay monthly.
Does CIFAS affect car insurance?
CIFAS stands for “Credit Industry Fraud Avoidance System”. CIFAS can place a marker on your credit report if an organisation, such as a loan or insurance company, suspects you’ve engaged in fraud.
The good news is that CIFAS markers won’t stop you from getting car insurance — but they might limit your options. You may not be able to pay monthly, but instead, you may be asked to pay the full amount up front. It could also result in more expensive premiums.
In summary
To recap, your credit history can affect your car insurance if you spread the cost over the year rather than pay it in one lump sum.
When you pay monthly, you’re entering into a credit agreement with the insurance provider, and they’ll want to check your credit report first to make sure you have a track record of making payments on time.
Get covered with Howden Car Insurance
Howden’s car insurance brokers can find a car insurance quote that suits you, offering the highest level of protection while keeping you as financially unaffected as possible.