Car insurance and your credit score
Your credit score affects a number of important areas in your life, like whether or not a bank will approve your application for car finance. It makes sense that you’d want to ensure that you have a great credit score and avoid activities that will lower your score.
That’s why it’s good to know if doing something like getting a car insurance quote will affect your credit.
Let’s talk about your credit score, car insurance quotes, and a few tips to improve your credit score.
Credit score 101
Your credit score is a 3-digit figure that ranges from 0 to 999. Your figure represents your creditworthiness and is based on a report that lenders have created especially for you. If you have a lower score, it indicates that you’re a higher risk and less likely to be approved for loans or get lower interest rates.
Essentially, the higher your credit score, the better.
If you want to find out what your score is, visit the TransUnion website. Once a year, you can download your credit score for free. There are also other credit platforms that allow you to access your score for free as often as you want, like Just Money.
A breakdown of credit scores:
- 0 – 486: Poor.
- 487 – 526: Unfavourable.
- 527 – 582: Below average.
- 583 – 613: Average.
- 614 – 680: Favourable.
- 681 – 766: Good.
- 767 – 999: Excellent.
Factors that affect your credit score
Lots of elements are involved in calculating your credit score, including your past payment history (whether you make payments on time), your current debt load, credit history length, credit mix, credit utilisation ratio, and account or enquiry activity.
Let’s focus on the enquiry activity, because most people don’t understand that these actions can affect their score. For instance, shopping around for a personal loan means that multiple lenders will run their own credit checks as part of the application process. Every time someone does a credit check, it leaves a mark on your report, known as an enquiry.
These stay on your credit report for 12 months and having lots of enquiries on your report, especially in a short space of time, can make it look as if you’re struggling with your current debt.
It’s this concern that leads people to worry about whether getting car insurance quotes will affect their credit scores. Thankfully, this isn’t the case and no matter how many quotes you get, your score won’t be impacted.
Here are examples of what could negatively impact your credit score:
- Missing monthly payments.
- Being late on monthly payments.
- Frequently applying for credit.
- Your credit use continuously going up.
- Having a judgment against you.
- Being declared bankrupt.
An interesting fact about credit scores and car insurance
You might be surprised to learn that while getting an insurance quote won’t affect your credit score, your credit score could affect your car insurance.
That’s because an insurance company uses your credit score to tell if you’ll be a reliable policyholder who makes their monthly payments on time. You might not get cover at all! Additionally, if you have a low score (as in, you’re a higher risk), you could pay a higher premium.
Don’t get caught out
The great news is that you can improve your credit score by catching up on over-due accounts, paying down revolving credit balances, and making sure that you don’t miss payments.
That said, it’s all good and well to advise you not to miss payments, but if you’re in a bad financial situation and know that you’ll miss a payment or just want to cancel your car insurance policy, consider talking to your insurer.
Missing payments and cancelling policies can have detrimental consequences, and most insurers will be willing to talk about a solution, like downgrading your policy to a lower and cheaper level of cover. Remember, some cover is better than no cover at all.
If you want to check out more affordable car insurance from an insurer with a royal heart of gold, click here to get a quote or WhatsApp 0860 50 50 50.
