Created by: Rebecca Goodman | 14 January 2019

How does my credit score affect my car insurance premium?

When you take out a new car insurance, an insurer may look at your credit history to decide whether or not to sell you the policy. Confusingly, sometimes they will also look before you’ve bought a policy and this search will show up on your credit score.

However, this doesn’t happen with every insurer and it’s generally only if you’re looking to pay for your insurance monthly. Here we explain how and why insurers do this, and if your credit score can be affected when buying a new policy.

Why do I have to give an insurer personal details when asking for a quote?

Using a comparison website is a quick and easy way to compare a lot of different quotes for a new car insurance policy in one place.

You’ll need to enter some personal details first, such as your address, profession, and if you’ve had any speeding fines before. This is because each insurer uses these details to decide what price they will quote you.

As insurance is based on risk, if you live in an area of high crime, for example, your premium might be higher than someone living in an area of low crime.

Why does the insurer also look at my credit score?

During the process of searching for quotes, insurers will also look at your credit score. This is to verify that the information you have given is correct, such as your address and name.

When this happens, the insurer carries out what is called a ‘soft search’ on your credit score. This will be marked on your credit history and called something such as ‘ID check’ but only you will see it and it will disappear after around six months.

Lenders can not see these soft searches and therefore you don’t need to worry about them affecting your credit rating and your ability to apply for credit in the future.

What happens when I decide to buy insurance?

If you have found a car insurance quote you like the look of, and the policy is right for you, you then have the option of paying monthly or yearly.

A yearly payment is made in one go upfront, while the monthly payment does what it says on the tin and you make the payment at a set date each month.

Usually monthly payments end up being a lot more expensive as insurers add interest to the payment, therefore if you can afford to pay in full it will save you money overall.

With monthly payments, the insurer is effectively agreeing to give you the insurance policy for 12 months and you are paying it back in that time.

Therefore before you’re approved for a policy, it will run a hard check on your credit score to make sure you have the ability to pay back the entire year’s insurance.

As this is a hard credit check, it will appear on your credit score in the same way as an application for a credit card, loan or mortgage would do so. The insurer should tell you before this happens, but if not always check the small print when buying a new policy.

If you have too many credit applications on your credit score, especially if they’re made over a short space of time, this can lead to a negative overall score, which will reduce your chances of being accepted for credit in the future.

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