Does your credit score affect your car insurance rate?

Even if you don’t know it, your credit score has a big impact on important financial decisions.

When you take out a loan, your credit score can affect the interest rate you’re offered. Your credit score could stop you from getting approved for a credit card. Your credit score could even see you declined for a mobile phone contract. So we’re exploring if your credit score has any impact on the car insurance rate you’re offered…

Let’s start from the beginning

A car insurer looks at a number of things before they provide you with an insurance quote. Things like the make and model of your vehicle, your personal profile and your estimated mileage – all things that will affect the cost of your premium. And when you get a quote, the lender will perform a credit check on you. This is usually just to verify your identity, but it all depends on how you pay for your car insurance…

Paying for your car insurance annually

If you can afford to pay for your car insurance up front, the quote you see is the price you pay. Your credit score isn’t taken into account, it’s all those other factors mentioned above which decide the price of your policy.

However, there are little tips and tricks you can do to lower your premium (but we never condone lying). For example, a study by Go Compare found that similar-sounding job titles have big price discrepancies. By just changing your job title from ‘chef’ to ‘kitchen staff’ could save you an average of almost £100… and a ‘music teacher’ pays an average of £85.63 more than a ‘teacher’.

Paying for your policy monthly

Unfortunately, it’s not the same story if you have to pay for your car insurance monthly. This is because your car insurance provider is saying they’ll cover you for a whole year, without you having paid for it yet. And like with any other credit agreement, they’ll check your financial history to see if you’re responsible with money and reliable at paying back what you owe.

If you have a low credit score, you could see the car insurance quote jump up if you decide to pay for it monthly. Why? Because according to research from Tesco Bank, people with a low credit score are statistically more likely to claim. Not only that, the lender will also add interest to your repayments and some might not accept your application altogether.

We recommend checking your credit report before applying for car insurance, especially if you’re thinking of paying for it monthly. By correcting mistakes and taking steps to improve your credit score, you could improve your chances of being approved, as well as lower the interest rate on your car insurance policy.

The impact of a credit check

There are two types of credit checks you need to know about – soft and hard searches. When you get a car insurance quote, the lender will conduct a soft search against your name. This is nothing to worry about as doesn’t leave a mark on your credit report which lenders can see and it doesn’t affect your credit score. You can do as many soft searches as you like.

However, if you accept a car insurance quote, you’re likely to be hard searched. This will leave a mark on your credit report which lenders can see. One or two marks are OK, but too many in a short space of time could affect your credit score as it makes you look like a risky candidate to lenders. 

Worried about what’s on your credit report, find out how to check yours here.