Car Insurance and Your Credit

Car insurers look at a number of things in order to provide you with an insurance quote. As well as the make and model of the vehicle, they also assess your mileage and a number of personal details. When you get your quote, they will also perform a credit check on you to verify your identity. But, could this affect your credit rating? In this post, we take a look.

Does Getting a Quote Affect my Credit Rating?

If you use a comparison site to look for car insurance, or get a quote directly from a provider, then it may leave a mark on your credit file. When looking for insurance, you have to hand over personal details, because each quote is dependent on your personal circumstances.

This means it can only be seen by you and the referencing agency providing your score. It will also disappear after 12 months. The search is purely conducted to verify the details you have provided.

This is different to if you apply for something like an online loan, a mortgage or a credit card. To work out whether to accept you or not, these companies perform what’s known as a ‘hard search’ where they check your file as part of their process for considering whether to accept you or not. These are visible to other lenders and stay on your credit file.

As a note, some of these providers do also offer QuickCheck services so you’ll know whether you’ll be successful before you apply, and don’t harm your credit score.

What About Taking Out a Policy?

Whether taking out a policy affects your credit score will depend on how you decide to pay for your insurance. If you pay the policy off in full when taking it out, then the balance is settled and there is no credit check.

However, if you pay monthly then you’re effectively setting up a credit agreement where you pay interest on top of the loan amount. This is because your provider is covering you for a whole year without you paying for it. For this reason, they check your credit score to see whether you’re able to pay them back.

Research in The Sun has shown that people with a low credit score are statistically more likely to make an insurance claim, and the cost of a policy could increase by as much as 20% if you pay in monthly instalments and have a low credit rating.

However, there’s no need to panic. An insurer should always tell you before they credit check you, and you’ll be given the chance to pay annually instead.

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