Credit Score Basics > Does car insurance affect credit score?

Does car insurance affect credit score?

Wollit Team3 minute read · Updated 29th June 2024

Car insurance can affect your credit score only if you pay it monthly.

That's because car insurance is a legal requirement if you own a car, which means that car insurance providers can only provide coverage for at least a year.

If you choose to pay monthly, the car insurance provider gives you a loan for the entire yearly amount. This makes your monthly premium a repayment, even if it feels like a subscription.

In other words, when you get a monthly car insurance plan, you also get a loan. So, if you miss making the monthly premium payments, your score will suffer, and you might default or even be taken to court (another hit to your credit score). But if you make all premium payments on time, your credit score might improve.

There is another way monthly car insurance can affect your credit score – cancelling it.

Since it's a loan, you can't cancel your car insurance by stopping your direct debit. You'll first need to tell your insurer that you want to cancel and pay the cancelling fees. Otherwise, you'll be hit with multiple missed payments on your credit record – really bad news for your credit score.

You should also remember that the only kind of car insurance policy that affects your credit score is one with monthly payments.

This means that temporary car insurance, rental car insurance, or insurance paid upfront never appears on your credit report and has zero impact on your credit score.

How long does car insurance stay on my credit report?

A monthly car insurance plan goes on your credit report just like any other loan. Once there, it will stay on your file as long as it's valid.

The only exception is if you miss a payment – missed car insurance payments stay on your credit report for six years.

The same is true if you miss multiple payments and your car insurance provider closes your account. Defaults also stay on your credit report for six years, as do CCJs – if the insurance provider has to take you to court for late payments.

But missed car insurance payments don't just show up on your credit report. They are also recorded in the Claims and Underwriting Exchange (CUE), which has data on all the UK claims and car insurance policies. If you miss a payment, it will also be recorded there for up to 7 years, which might make it harder or more expensive to get car insurance în the future.

Can simply applying for car insurance hurt my credit score?

Simply getting a car insurance quote won't affect your credit score.

When you ask for a quote, insurance companies only check your eligibility and run a soft check at most. Soft checks do not show up on your credit report and don't impact your credit score.

Things change when you actually apply. Applying for a monthly car insurance plan requires you to give your consent to the insurance company so that they can run a hard check on you.

Unlike soft checks, hard checks:

are visible to other lenders;
stay on your credit report for up to two years;
and can also hurt your credit score.

Hard checks appear on your credit report regardless of whether your application gets rejected or approved. It doesn't even matter if you later change your mind and go with another insurer.

That's because having many checks from many credit applications can make lenders think you're in financial trouble.

The best solution is to always ask for quotes before applying and to make no more than two applications in six months. This will reduce the impact of the hard checks on your credit score.

Can a bad credit score make it harder to get car insurance?

Yes, a bad credit score can mean a harder time getting car insurance:

Your application might be rejected;
You might have to pay higher premiums because you're deemed a riskier borrower;
Some insurers might even say that a bad credit score makes you more likely to make a claim – another reason to increase your premium.

That's why, if you have a low credit score, you might be better off finding another way to pay for your car insurance, like with a credit card. But remember that some insurance companies charge more if you pay by credit card.

Could having car insurance improve my credit score?

There is a silver lining if you have monthly car insurance.

Since it's technically a loan which shows up on your credit report, monthly car insurance can help you build your credit history.

If you pay the premiums on time every month, your credit score can even build up over time.

Here are a few more hacks to boost your credit score:

Register to vote. It takes just a few minutes and can add up to 50 points to your credit score.
Sign up to Experian Boost. It's free, and Experian claims it can add another 66 points to your Experian credit score. It lets you make regular payments like Council tax, ISA contributions, and even your Netflix count towards your Experian credit score.
Download a credit-building app like Wollit. Wollit reports your monthly subscription as loan repayment, helping you further build your credit history and improve your credit score.