Do car insurance quotes affect your credit score?

If you’ve ever used a comparison site to find a cheap insurance policy, then you’re probably aware that it left a mark on your credit report. Who exactly uses this information? Will it stand in the way of you getting affordable car insurance quotes? What is a credit score, anyway? We’ve compiled this guide to help answer some of your questions.

What is a credit score?

A credit score is something that’s used to determine whether or not you qualify for a type of credit such as a loan, mortgage, credit card, or service. Information from your credit report helps lenders to calculate the type of borrower you are, and if you’re likely to manage repayments well. A credit report equals a credit score.

Your credit score will play an important role in the services you take out throughout your life such as a mortgage or a credit card. It not only determines whether or not your application will be accepted, but how much interest you’ll end up repaying as part of the credit agreement.

Whenever you apply for a type of credit, the lender will approach a credit reference agency for accurate and up to date information about your credit history. In the UK the three leading credit reference agencies are Experian, Equifax, and Callcredit. A credit reference agency will hold information about you including:

  • Your presence on the electoral register
  • Court judgements that may have been made against you
  • Bankruptcies or insolvencies
  • Past and current credit agreements, how much you owe and your repayment history

People who have a higher credit score are at a lower risk, meaning that lenders are more likely to give them credit. However, every lender will follow a different policy so even if you believe your credit score is high you might still be refused. If this is the case, you should always find out why before you fill out another application to apply for credit.

What will affect my credit score?

Credit scores usually range from 300-850, and it tends to be the higher, the better. There are a number of factors that can end up affecting your credit score and cause it to change. These include:

  • Your payment history (35%)
  • Current debt (30%)
  • The length of your credit history (15%)
  • Credit mix (10%)
  • New credit (10%)

Payment history

If you skip payments or regularly pay things late, it will negatively impact your overall credit score. These things can remain on your credit report for seven years or more.

Current debt

Those that are high in debt will find it difficult to increase their credit score and therefore struggle to get another loan.

Length of credit history

Your payment patterns, credit applications, and the amount of time you’ve had credit will all be taken into account. If you have a good history of credit, it can boost your score, as long as you don’t skip or make late payments.

Credit mix

Having a mix of credit (i.e. a mortgage, a credit card, and a car loan) is considered better than having many credit cards. Find the right balance between different types of credit.

No one has a universal credit score, which means that there is no official rulebook when it comes to how many credit points you can lose or win.

Why do insurers check your credit score?

Studies have shown that taking a person’s credit score into account helps insurers to predict possible insurance losses better. For that reason, 92% of all insurance companies will consider your credit score when they’re calculating insurance premiums.

A credit-based insurance score is the fairest way to quote every customer. However, insurers don’t look at your credit score the same way that financial lenders do. They will only look at factors that could pertain to potential losses. They will also take note of how many credit searches you’ve done in a certain space of time.

Will this affect my chances of getting a mortgage or a credit card in the future?

If you apply for credit as opposed to searching for quotes, these are known as hard searches and implies that you are desperate for credit. Insurers may not award you credit in this instance. These are visible to future lenders and could affect you in the future.

On the other hand, using a price comparison site to find a deal for you is known as a soft search. This type of search will be seen on your credit report, but no one else will be able to see it other than yourself and the credit reference agency providing your credit score. It will also disappear after 12 months so will have no impact on your chances of gaining credit in the future.

Taking out an insurance policy may or may not leave a mark on your file. It depends on how you pay for it. Paying on a monthly basis for your car insurance means you’ll be setting up a credit agreement and thus you’ll be credit checked. You should always be told if and when an insurer completes a hard search. Look for something such as ‘insurance quotation’ or ‘ID check’ and the name of the insurance provider on your file.

Ways to improve your credit score

Should you really be worrying about your credit score? Well, yes and no. In the past ten years, the credit landscape has shifted toward something known as ‘rate of risk’. This means that your credit score will be better the more “creditworthy” you are and you’ll be awarded better deals on things like contract mobile phones, bank accounts, and your monthly car insurance.

When you go to apply for credit, lenders will assess your credit score to see if you’ll be able to make the necessary repayments. Each lender will assess/score you differently and secretly to see if they think you can repay what you owe them. If you meet their requirements, you’ll be deemed a profitable customer and are likely to be given credit. As we’ve mentioned, people with a higher credit score are seen as a lower risk but how can you improve your credit score?

Watch and eliminate your credit card balances

Look at your revolving credit in comparison to how much of it you’re actually using. The smaller this percentage is, the better it will be for your credit rating. Aim to get to 30% or lower.

If you have a number of credit card balances at one time, consider consolidating them with a loan. Even if you pay your balances in full every month, your utilisation ratio might still be higher than you thought. Instead, see if your credit issuer will accept multiple payments throughout the month.

Eliminate any credit balances by gathering them up and paying them off in one fell swoop. Only having one or two credits out at one time will benefit your score.

Leave old debt on your credit report

A lot of people still believe that having past debt on their credit report will place them at a disadvantage. While its true that negative items will negatively impact your credit score, having debt that you have handled well and paid off in time, every time, will prove to lenders that you can manage credit and thus boost your score.

Pay your bills on time

Even if you’re juggling bills every month, you should never pay them late. This one is particularly important if you’re working toward saving for a huge purchase. One of the biggest benefits to a good credit score is month after month of on-time payments, and this can sometimes even extend to things that aren’t usually associated with credit reporting. Doing this should help to improve the insurance scores you’re quoted.

Get a car insurance quote today from Call Wiser, and you’ll benefit from a comparison site that’s honest, fair, and transparent with our pricing strategies.

Author: Call Wiser


Call Wiser is a trading name of Be Wiser Insurance Services Ltd. Registered in England No. 6097813. Be Wiser Insurance Services Ltd are Authorised and Regulated by the Financial Conduct Authority 465471

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