Does Your Credit Score Affect Car Insurance Applications in the UK?

Poor credit score next to piggy bank on chalk board

In the world of finance, your credit score is important for a number of reasons, particularly if you want to apply for a loan, mortgage or credit card. 

Lenders and creditors will look at your credit score and report to determine how creditworthy you are, using information on how well you repay debt and whether or not you pay it back on time. So, in order to secure the best deals on the market with the most competitive interest rates, you’ll need to have a good to excellent score. 

As a driver in the UK, car insurance is one of the most essential payments you have to make to remain legal on the roads, but does your credit score have an impact on getting cover? Do insurance companies check your score? And does your score affect the cost of your premiums? 

We explain all you need to know in our guide to credit checks and car insurance in our guide below.

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Do you have a credit check for car insurance? 

When purchasing a car insurance policy, most providers will want to check your credit report and score for different reasons, and they will either carry out a ‘soft search’ or a ‘hard search’, depending on how you intend to pay for it. 

Soft vs hard credit check 

What is a soft credit check? 

A soft check, also known as a ‘soft search’, means that a company or individual is checking your credit report and rating purely to confirm that your details are correct and to make sure that you are telling the truth on your application. 

A soft credit check does not have a negative impact on your credit score and only you are able to see a record of this on your credit report - it will not be seen by any other potential lenders, and therefore, will not damage your credit score (unlike a hard check). 

If you want to pay for car insurance annually with one lump sum payment, the insurance company will run a soft check on your report to confirm your details, but if you want to pay for car insurance monthly then they will need to perform a hard search. 

What is a hard credit check? 

If you would prefer to pay for car insurance on a monthly basis rather than one , upfront, annual payment, perhaps because you can’t afford the lump sum or you want to spread out the cost of cover, then it is likely that the insurance provider will do a hard check on your credit report before you purchase it. 

Any hard credit checks will show up on your credit report, and any future lenders or companies will be able to see it. The more hard checks you have on your report, the more your credit score will be affected, particularly if you have been refused credit due to a history of missed or late payments, and the more risky you will seem to lenders, so they’ll be hesitant to lend you money. 

Generally, when paying monthly for cover, it is essentially a credit agreement because the insurer has given you a year’s worth of cover straight away, but are letting you pay it back over the course of the year. 

If you are not going to be receiving credit, an insurance company is not permitted to carry out a hard check on you - they must always inform you first before doing so. 

Read more: The Best Sites to Get a Free Credit Report and Score 

Annual vs monthly car insurance: What’s best? 

The type of policy you buy is completely down to your needs and your financial situation. Usually, the most cost-effective option is annual car cover, because you just make the one lump sum payment and are not subject to any additional costs like interest. 

If you choose to pay monthly, however, it can help spread out the cost - but just remember that you will have to pay interest on top, so it tends to work out the most expensive option in the long-run. 

Annual insurance also doesn’t come with the risk of having hard searches on your credit report, so you know your credit file won’t be affected with this type of policy. 

Something else to think of is whether or not you intend on applying for other types of credit soon, such as a mortgage or loan, so you don’t want any hard searches hindering this. 

Make sure you don't confuse paying monthly for cover with one month car insurance (temporary cover), as they are completely different types of insurance policies.

Learn more: A Complete Guide to Credit Scores in the UK 

Does your credit score affect car insurance in the UK? 

As mentioned above, your insurer will not need to carry out a hard search on your credit file if you’re purchasing annual cover, so no matter what your score is, you can still purchase a policy as normal.  

If you want to pay for it monthly, however, then your credit score may affect the price you pay for car insurance, particularly if your score is neither good nor excellent. 

Does my credit history affect the cost of cover? 

Calculating the cost of car insurance for drivers is all to do with the level of risk they pose to the insurer, so the more sensible the driver (both on the road and financially), the cheaper the premiums will inevitably be. 

When working out the cost of your policy, the insurer will take a range of factors into consideration, including: 

  • Your age 
  • Occupation 
  • Postcode 
  • The number of years you’ve been driving and history (number of claims made) 
  • No claims bonus/discount 
  • Your vehicle’s make and model (and age) 
  • Mileage 
  • Voluntary excess 

If the insurance company needs to check your credit because you want to pay monthly, it will want to see a good score, as a bad credit rating suggests that you’re unable to keep up with monthly repayments and it increases your level of risk. 

Statistically, drivers that have low credit scores are also more likely to make a claim on their policy, which is another risk factor to consider.  

So, with a poor score, you should still be able to get cover and pay monthly, but inevitably, a lower credit score will result in higher premiums and higher interest rates, so you will end up paying a lot more for cover overall. 

Learn more: Ways to Improve Your Credit Score 

Does getting car insurance quotes affect your credit? 

If you get a quote for cover through a comparison site or directly with an insurer, your credit score will not be negatively impacted. The insurer you’re getting a quote with may do a soft search just to check your details, and they will only do a hard check if you’ve applied to pay monthly. 

With every insurance policy, you will legally have a 14-day cooling off period where you can cancel your cover if you change your mind. You may want to do this if you’ve found a better deal elsewhere or aren’t happy with the service. 

If you decide to cancel within this cooling-off period and a hard check was carried out on your report when you applied, this hard search will stay on your record, despite you cancelling the policy. And when you apply for another policy elsewhere, that hard check will also go on your report, which can reduce your credit score and make it more difficult if you’re trying to improve it. 

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Cancelling your car insurance - Does it affect your credit score? 

If you need to cancel your policy for whatever reason, you need to be aware of any early exit fees and administration costs first. If you’re switching providers to get a better deal, you need to make sure that the overall savings you’re going to make will outweigh any fees. 

If you’re paying annually or monthly, cancelling your policy shouldn’t have a negative impact on your credit score, provided that you cancel it the right way. 

If you have set up a direct debit to pay for your car insurance every month, you will need to inform your insurer if you want to cancel the policy and you’ll have to pay any exit fees.  

If you simply cancel the direct debit and don’t let your insurer know, your credit record will show that you have missed payments, which will subsequently make your credit score plummet. 

It is important to remember that any missed car insurance payments can stay on your record for up to 7 years, which will likely result in higher premiums with your future policies. 

Does paying your car insurance build credit?

If you pay for car insurance annually, it will make very little difference to your credit score, if any at all. It will neither increase your rating nor negatively affect it. 

By paying monthly, however, you have the opportunity to improve your credit score because you are essentially tied to a credit agreement. So, by making every payment on time and in full, this will show up on your credit report and over time it will increase your score, helping you secure better deals in the future. 

It is vital that you pay each instalment on time and you do not miss a payment, because doing so will reduce your score and your insurer could even cancel your policy altogether. To make sure this doesn’t happen, your best option is setting up a direct debit with your insurance company. 

If you fail to pay your car insurance, you could end up with a County Court Judgement (CCJ), which will make it very difficult to obtain insurance in the future; some insurers may refuse you cover, while others offer specialist insurance for drivers with convictions, but it usually comes at a higher cost. 

Read more: Insurance for Convicted Drivers: Driving Offences vs Criminal Convictions 

Temporary car insurance, named drivers and excess

If you’re purchasing short-term cover, you will need to pay for it upfront, so this will not affect your credit score.  

If you want to add a named driver to your policy, or you are being added to someone else’s policy as a named driver, their credit score does not need to be checked and it will not show up on either the named or main driver’s credit report.  

If the named driver has a bad credit score, it will not impact the main driver’s rating, and vice versa. 

When purchasing cover, the cost of your compulsory excess is calculated based on factors about yourself and your credit score, so the lower the score, the higher the excess will be to account for the added financial risk. 

How can I get cheap car insurance with bad credit? 

Those with a poor credit score are usually the ones who need the cheapest car insurance premiums – unfortunately, that isn’t usually how it works. 

Luckily, though, there are a number of ways in which you can minimise the cost of car insurance with bad credit. These include: 

  • Paying for cover in one go – you’ll avoid hefty interest rates by doing so, and your credit score shouldn’t have an impact. 
  • Look for specialist cover – some providers pride themselves in offering car insurance for bad credit customers. 
  • Change your car – if you have an expensive, powerful car then your insurance premiums will be higher. If you can, try to drive a smaller vehicle with a less powerful engine. 
  • Avoid add-ons – you may be paying for extras that you do not need, such as breakdown cover. Removing these will reduce your premiums. 
  • Drive less – reducing your mileage will also reduce your insurance premiums, so make sure you aren’t claiming to drive more than you actually do. 

Car insurance credit check

If you want to get car insurance with no credit check then your best option is to purchase an annual policy where you just make the one upfront payment, if you can afford to do so. 

And bear in mind that if you opt to pay monthly, it will cost you more in the long-run and it is likely to impact your score negatively if you don’t keep up with the payments. 

To stay on top of your finances and to know where you stand when it comes to credit and getting the best deals on the market, you must regularly check your score. By doing this, you can easily spot any errors on your report which might be holding you back from getting great finance deals, and if it’s below average, you can start looking at ways to improve it. 

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