How A Bad Credit Score Can Affect Your Car Insurance

How having a poor credit score can impact how you purchase car insurance.

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Car Insurance Credit Check

If, like millions of people, you want to pay for your annual 12-month car insurance policy in monthly direct debit instalments, you will need a good enough credit score to be accepted for this payment option.

Car insurance credit checks

When doing a car insurance quote, many companies will conduct a soft credit check just to confirm your identity and address details. A soft credit check does not impact your credit score and although it is recorded on your file, other lenders cannot see it.

However, if you opt to pay for your car insurance by monthly direct debit, then a hard credit check will be performed. This is because you are effectively taking out a loan to pay for your insurance and like any application for credit, the company will want to ensure you are creditworthy.

If you have a poor credit history then a request to pay your car insurance in instalments may be refused or, depending on the company, they may still allow you to pay monthly but with an increase in your rate. It's always worth checking your free credit score yourself before applying for credit.

Getting rejected for monthly payments

If you are rejected for credit and subsequently refused a monthly payment option, then it essentially leaves you with one option which is to pay for your 12-month policy in one lump sum. This can be prohibitive for many where the premium is very high, leaving you without cover. A hard credit check also leaves a footprint on your credit history file that other lenders can see and although it does not show the decision of the lender, an extra request for credit may affect your overall score.

Alternative if you are refused credit

One insurance product that is gaining huge popularity is monthly subscription car insurance. This differs from a 12-month policy in that you are buying insurance only for a month with the option to renew each month if you choose. If you do stay for twelve consecutive months then you can still earn No Claims Bonus.

The advantage of this product is that there are no credit checks because there is no loan. You pay for your monthly subscription up front and that's it. There is no interest and you can cancel your policy at any time without paying any fees. It could be a smart way to get your car insurance issue resolved.

Cheaper to avoid paying by direct debit

Regardless of your credit rating, if you can pay the whole amount in one go then you should. Doing this avoids you having to pay interest fees and reduces the cost which in some case can run into hundreds of pounds.

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