Does Car Insurance Affect Your Credit Score?

Car insurance providers may use your credit score to decide how much your premium will cost. But does car insurance affect credit scores? Or, does your credit score affect the cost of your car insurance? And if so, is it for the better or the worse?

In This Guide:

Will having car insurance affect your credit score?
Do car insurance providers check your credit report?
Will getting an insurance quote affect my credit score?
How credit histories affect your insurance premium
How to improve your credit score for cheaper insurance
Key takeaways
FAQs

Will having car insurance affect your credit score?

Yes — but only in some instances.

If you pay your car insurance annually, it won’t affect your credit score at all. But it can have an impact if you spread the cost over several months.

Paying monthly

Instead of paying your premium in one lump sum, you can choose to spread the cost over 12 months.

Paying monthly can improve your credit score because it enters you into a credit agreement with your insurance provider. Credit agreements show up on your credit file as a type of instalment loan. So, providing that you make monthly payments on time and in full, you’ll increase your credit score over time.

Just bear in mind that a pay monthly agreement will come with interest, making your car insurance more expensive.

A couple making a payment using a mobile phone.

Failing to pay on time

While pay-monthly insurance could improve your credit score, missing a monthly payment can have the opposite effect.

Missed payments show up on your credit report, flagging you as unreliable to insurers. So, if you don’t make your payment on the scheduled date, your credit score will drop.

Do car insurance providers check your credit report?

Car insurance providers will always check your credit report. There are two types of checks they can run depending on the circumstances: soft checks and hard checks.

Soft credit checks

If you request an insurance quote or opt to pay for your insurance upfront, the insurance provider or price comparison website will run a soft credit check.

A soft credit check is only used to verify your identity. So, it doesn’t affect your credit score and won’t show up in your file, regardless of how many soft checks are done against your report. It reveals basic information, such as your name, address, and overall credit score.

Hard credit checks

If you apply for a monthly car insurance payment plan, providers will run a hard credit check. This gives them access to the entirety of your credit report for the purpose of assessing your eligibility and reliability.

Hard credit checks can negatively affect your credit score, although this isn’t usually a cause for concern. In most cases, the effect will be minor and temporary, returning to normal after a year or two.

However, issues arise if you have lots of hard checks on your credit report that span over a short period of time, especially if you’ve been rejected. Not only do all of those lost points add up, but they raise a red flag to insurers. They may assume that you’re in financial trouble or are taking out more credit agreements than you can afford, reducing their willingness to lend to you.

Luckily, providers can’t run a hard credit check without your permission. And, you can easily mitigate risks by limiting the number of applications you make.

You can also compare car insurance quotes before making applications. This reduces the number of hard checks against your credit report while giving you the best price on your premium.

Will getting an insurance quote affect my credit score?

No. Getting a car insurance quote will never affect your credit score, whether it’s done via the provider or through a price comparison website like Money Expert. Insurance quotes only require soft credit checks, which don’t show up on your report and have no impact on your credit score. They’re simply used to verify your identity and help you gauge how eligible you might be for different types of loans and interest rates.

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How credit histories affect your insurance premium

Your credit score can affect how much car insurance you’re required to pay in two key ways.

Poor credit scores can raise insurance premiums

People with poor credit scores typically have to pay higher premiums. This is because insurers believe — rightly or wrongly — that low credit score holders are at a higher risk of defaulting on payments and are more likely to make claims.

That said, your credit score is just one factor determining your risk. Car insurance providers also consider factors like age, location, and job title.

Good credit scores lower insurance premiums

The higher your credit score, the lower your insurance premium is likely to be. A good credit score signifies to insurers that you pose a low risk defaults and claims, allowing you to pay less.

But what exactly is classed as a “good” credit score?

The three main credit reference agencies (CRAs) categorise poor, fair, good, and excellent credit scores differently, each of them using varying numerical scales. Plus, what constitutes a “good” score can vary from provider to provider.

But to give you an idea, here’s what each CRA considers a “good” credit score:

Experian: 881-999 out of 1000

Equifax: 670-739 out of 850

TransUnion: 604-627 out of 710

A fair credit score will still get you competitive car insurance rates. But the higher you climb, the better deals you’ll be offered.

How to improve your credit score for cheaper insurance

It’s illegal to drive a car without insurance, so you absolutely need it before you get behind the wheel. But it isn’t always cheap. One way to lower the cost of your car insurance is to improve your credit score.

Here are three tips to help you get a better credit score.

Check credit scores across the three main credit reference agencies (CRAs)

As we’ve mentioned, there are three main CRAs in the UK: Experian, Equifax and TransUnion. These CRAs collect your credit information, share it with lenders on request, and provide you with access to your credit report.

There’s no telling which CRA your chosen car insurance provider will use to check your credit score — it could be all three. So, it’s wise to check your credit scores across each of these CRAs to gauge a comprehensive view of your credit profile.

Make sure to consistently update your information on every site and fix any errors. This ensures that lenders see your most accurate credit score.

A smiling woman looking at a laptop in a cafe.

Pay your bills on time every month

Paying monthly instalments boosts your credit score as long as you pay the correct amount on time every month. This goes for any type of pay-monthly credit agreement you have: car loans, mortgages, credit card loans, etc.

So, along with your car insurance, make sure to pay all your bills on time. Setting up direct debits and calendar reminders can help you stay on track.

Consider using credit-building tools

If you have poor credit history, credit-building tools can help you boost your credit score and, in turn, your chances of being accepted for cheaper insurance premiums. They’re useful for people with low credit scores, lots of rejections on their records, and people with a lack of credit history (such as young adults).

Credit-building apps, for example, scan credit reports for discrepancies, report up-to-date payment information to CRAs and provide personalised tips on how to build your credit.

You could also try a credit-building credit card. Offering low credit limits, credit-building cards are designed to help people with low credit scores or a lack of credit history gain a positive credit score.

Key takeaways

While paying your car insurance annually will not affect your credit score whatsoever, paying monthly can have a positive or negative impact.

If you keep up with monthly payments, your credit score will boost and you’ll get better rates on your next premium. But if you miss payments, your credit score will suffer, leading to higher premiums in the future. So, compare car insurance quotes on Money Expert to find a rate that is financially viable and within your budget.

FAQs

Will temporary car insurance policies affect my credit score?

No. Temporary car policies don’t affect your credit score — and named drivers don’t even get credit checked. This means that you can be insured on another car for up to 30 days with no credit score impact. It won’t affect the credit score or insurance premium of the main policyholder either.

Will my credit score be affected if I pay my car insurance annually?

No, it won’t. When you pay annual insurance, the provider will only ever do a soft credit check, which doesn’t impact your score at all.

What happens to my credit score if I cancel my car insurance?

Cancelling your car insurance policy shouldn’t affect your credit score — but you need to cancel it properly.

If you pay monthly, you can’t just cancel your direct debit. You need to inform your insurance provider of your cancellation (and pay any admin fees as per your provider’s policy). If you don’t, they’ll continue to bill you. This will show up on your record as missed payments, which hurts your credit score.

Can I still get car insurance with a poor credit score?

Yes. The best way to get car insurance with a poor credit score is to pay upfront. If this isn’t possible, you can still obtain car insurance by comparing quotes to find affordable options. Other things you can do include adding an experienced named driver to your policy, paying a higher excess, and opting for telematics car insurance.