Does bad credit affect car insurance rates?

credit car insurance rates

If you’ve got bad credit you may be worried about how it affects a number of things you apply for. When you think of applying for things that need a credit check you may automatically think of things such as car finance, credit cards, mobile phone contracts or mortgagees. But have you thought about how your credit rating affects your car insurance premium? Refused Car Finance are bad credit car finance specialists who help people get car finance even if they have bad credit. They explore whether bad credit affects your car insurance rate and how you can improve your score.

What is bad credit?

Your credit file and credit score are two different things. Your credit file is basically your financial cv, where you can see how well you manage your credit and your payment history. Your credit score is usually a numerical piece of data which indicates to lenders how good you are at managing your money and finances. Different credit scoring companies use different scales, however, a higher number usually indicates you are better at managing credit. You can check your credit file yourself for free online and view your credit score. Bad credit is when you have a low credit score. This can be due to a number of factors such as missed or late payments, defaults, bankruptcy, county court judgements or individual voluntary arrangements. You may find yourself with bad credit if you have no credit, this is because you have no evidence of making any repayments.

How does your credit affect car insurance?

Unfortunately, in most cases, yes it does affect car insurance rates. This is because most insurance companies will check your credit file when they receive your application. This can be done simply to verify you are who you say you are or to check your repayment history. If you take out car insurance and choose to pay monthly, your car insurance provider is ultimately loaning you the money for the year before you pay it off.

In what other ways are you affected?

  • As mentioned, car insurance companies will provide a credit check on your file to get the info they need. However, this could be damaging your credit score further. When you apply, they may use a hard search on your file. A hard search is a complete and full check of your credit file and each check is recorded on your file, so other lenders can see when you’ve applied for credit. Multiple hard searches on your file could indicate you are desperate for credit and may decrease your score.
  • Having a low score may also mean you are offered a higher premium. As mentioned, you may be seen as more of a risk to make your monthly repayments on time and in full so you could be offered a higher premium or added interest.

How can I improve my score?

If you’re worried about car insurance and bad credit, there are many easy ways you can rebuild your credit score to put you in the best position when applying for any sort of loan or credit.

  1. Register on the electoral roll
    The electoral roll enables lenders to verify you are who you say you are and your address history. Even if you don’t care about voting, the electoral roll can be really beneficial. Lenders also tend to favor people who are more settled and don’t move around as much so being able to see your address history is a bonus.
  2. Pay your bills on time

This may seem really obvious and it can be difficult if you’ve had trouble in the past repaying your debts. However, paying your bills and repayments on time and in full each month can be really beneficial to your credit score. Even a few months evidence of responsible lending can increase your score pretty quick.

  1. Check your credit file

One of the first things you should do is check your file to see what position your in. When you view your file, you should look out for any mistakes or fraudulent activity. Even just having an incorrect address can affect your credit score.

  1. Financial linking

When you check your file, you should also make sure you’re not financially linked to anyone you shouldn’t be. If you’ve taken out joint credit in the past with someone, you can still be financially linked even after your agreement has ended. If they have bad credit, they could be dragging your score down. You should disassociate yourself from any financial partners you no longer need.

Related posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.