Do insurance quotes affect my credit score | moneyfacts.co.uk

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Published: 18/05/2022
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Thinking of getting a new car insurance quote? You may be wondering how it impacts your credit score. This guide will tell you everything you need to know.

Comparison sites and credit scores

Whenever you get an insurance quote on a comparison site, it will leave a mark on your credit file. Most of the time it won’t have an impact on your score – and other finance providers may not even see it – but in some cases it can have a negative effect, albeit a temporary one.

Why do insurers check my credit score?

Insurers use your credit file in order to check your identity. You’re filling in a lot of information when getting a quote, and they need to make sure that you are who you say you are. Not only is it to prevent fraud, but your details can determine the quote you’re offered, so they need to know what you’re claiming is accurate.

However, insurers may need to look closer at your score to determine whether or not you’re a credit risk. This will only be the case if you take out a policy and choose to pay monthly, as by paying in this way you’re essentially applying for credit – they’re letting you take out a year’s worth of insurance and pay it off monthly, and will charge interest for the privilege. They need to be confident they’ll get their money back, and as such, a full credit check will be performed.

How will it show on my credit score?

This will depend on the insurer’s reason for checking your report, and as a result, whether they’ll perform a soft or hard search on your credit profile.

When an insurer simply needs to check your details, they’ll perform what’s known as a soft search. It will still be logged on your file but will have absolutely no bearing on your credit score – no other lenders will be able to see it, and it will disappear completely after 12 months.

If you want to compare quotes from a lot of different insurers through a comparison site, don’t be alarmed if you see several soft searches – or search footprints – on your profile. The site will source quotes from a range of insurers, and each one will need to check your details before they can offer you a price. It doesn’t matter how many soft searches are on your file as only you and the credit reference agency will be able to see them; the only problem that could arise is if you have too many hard searches instead.   

A hard search is a little different. This is when an insurer needs to run a full credit check before setting up a credit agreement for you to pay monthly. In this case, the search will leave a mark on your credit report and other lenders will be able to see it, and it could cause your credit score to dip temporarily. And if you’re rejected, the impact could be more significant.

This may only have an impact if you’re thinking of applying for a major form of finance in the near-future, such as a mortgage, and the mark will only be visible for 12 months. That said, if you apply for a lot of credit in a short space of time and have several hard searches on your profile, future lenders can become increasingly wary about lending to you as it may indicate you’re becoming desperate for credit. For this reason, only arrange a monthly payment schedule with your preferred insurer once you’ve finished your insurance comparisons and are confident you’re taking out a policy with them.

Check your credit score

If you’re worried that a poor credit score could be holding you back, you need to know where you stand. Get your free credit report from Totally Money, and if there are areas you need to work on, find out how to improve your credit score by reading our guide.

Paying for my insurance

It’s generally cheaper and easier to pay for insurance in an upfront lump sum. However, as we’ve mentioned, if you don’t have the available cash or sufficient savings to cover the premiums in one go, you could always pay monthly.

This method essentially means you’re taking out a loan with the insurer, and the interest that will be applied means it can be far more expensive to pay for insurance in this way. That said, some policyholders prefer the flexibility, and so slightly enhanced payments can be deemed worth it. 

Can paying monthly improve my credit score?

Even though paying monthly could cause your credit score to temporarily dip thanks to the hard search on your file, over the course of the agreement you may find it has the opposite effect. 

This is because, by showing you’re a responsible borrower – that is, that you’re able to make the monthly repayments and repay the insurer in full – your creditworthiness can get a boost and your score will rise accordingly.

The caveat here is that you must stick within the agreement and never miss a payment, otherwise you’ll be hit with an instant black mark and will have to work a whole lot harder to recover from it. Missed payments can stay on your report for seven years, so if you think you might forget, make sure to set up a direct debit.

Should I pay for my insurance on a credit card?

Another option could be paying for your insurance on a credit card. If you’ve got a 0% purchase card this could be particularly beneficial, as you can still pay it off over the course of several months yet won’t have to pay any interest on it (provided you repay the full amount by the time the interest-free period comes to an end).

If you can’t get access to a 0% deal, you may be tempted to use a standard interest-bearing credit card instead. If this is the case, just make sure that the interest rate you’re being charged isn’t higher than the interest on the insurance policy, otherwise it could be cheaper to opt for the monthly repayment schedule.

How does my credit score affect my quote?

If you’re looking to pay for your premiums in one go and the insurer simply needs to run a soft search, then your credit score shouldn’t impact your quote in any way. The only exception to this is if they spot information which means you aren’t eligible or puts you in a higher risk category, but even then it won’t be your score as such, just your personal information.

However, if you’re looking to spread your payments over the year, then your credit score can affect your quote. Insurers will use your score to determine your creditworthiness, and if you have a low score and are consequently deemed high risk, you’ll be offered a higher interest rate – and if your credit history is too poor, you may have the option of monthly payments removed altogether.

Credit searches from auto-renewals

Once you’ve filled in your details with a comparison site, you may be sent quotes automatically when it’s time to renew your policy – which can add further soft searches to your credit file. Again, these searches won’t have any impact, but if you’d rather not receive them each year, it’s worth contacting the website and requesting they stop sending you quotes.

Cancelling your car insurance

Cancelling your car insurance shouldn’t have an impact on your credit score – provided you cancel it properly. This doesn’t normally concern policyholders who pay upfront, but again, paying monthly can cause a few more issues.

The thing to remember is that cancelling your direct debit won’t be enough. Instead, you must tell your insurer to cancel the policy and any associated monthly payments. This will ensure that you’re not unwittingly missing payments, which could lead to a huge hit to your credit score.

Moneyfacts tip Leanne Macardle

Looking for the best car insurance? Our Car Insurance Star Ratings highlight those providers who excel in terms of the features and benefits they’re able to offer, or compare quotes from hundreds of top insurers with Quotezone.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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