Does Credit Score Affect Car Insurance

Find out how your credit score affects car insurance in the UK, especially when paying monthly, and how to avoid higher costs

Does Credit Score Affect Car Insurance

When shopping for car insurance in the UK, you’re probably comparing prices, excess levels, and coverage — but have you ever wondered whether your credit score plays a role in the price you’re quoted? While it’s a common consideration in the United States, many UK drivers are unsure whether their credit history affects their car insurance premiums.

The short answer is yes, your credit score can affect your car insurance, particularly how you pay for it. However, the impact is more subtle than you might think, and it differs depending on the insurer and the payment method you choose. In this article, we’ll explore how credit scores are used in the UK car insurance industry, why they matter, and what you can do to minimise any negative impact.

How Car Insurance Payments Work in the UK

When you buy car insurance in the UK, you generally have two options:

  1. Pay annually in one lump sum

  2. Pay monthly in instalments

Paying annually usually works out cheaper because there’s no interest added. When you pay monthly, you're essentially entering into a credit agreement with the insurer or a third-party finance provider. This is where your credit score becomes relevant.

How Your Credit Score Affects Car Insurance

1. It doesn’t affect your eligibility for cover

All UK drivers are legally required to have car insurance, and your credit score does not prevent you from getting a policy. Insurers cannot refuse to offer you a quote based on your credit history alone.

2. It does affect monthly payment eligibility

If you choose to pay for your car insurance monthly, the insurer or their finance partner will usually run a soft or hard credit check to determine your eligibility for credit.

  • A soft search does not affect your credit score and is not visible to other lenders

  • A hard search may be recorded on your credit file and could affect your score temporarily

If your credit score is low, the insurer may:

  • Reject your application for monthly payments

  • Offer you a higher interest rate

  • Request an upfront deposit

  • Recommend you pay annually instead

3. It can affect the cost of your monthly premium

Insurers may charge higher interest rates on monthly instalments to customers with poor credit. While the base insurance premium remains the same, the finance charge for spreading payments increases, making the total cost of the policy more expensive.

For example:

  • A driver with good credit may pay 6 percent APR on monthly payments

  • A driver with poor credit may pay 25 percent APR, increasing the overall cost by hundreds of pounds over the year

Does Your Credit Score Affect the Premium Itself

In the UK, credit scores are not typically used to calculate the actual insurance premium, which is based on:

  • Age and driving history

  • Vehicle make and model

  • Where you live

  • Annual mileage

  • Claims history

  • No-claims bonus

  • Occupation

However, some insurers may still include credit-based pricing factors as part of their risk assessment models — although this is less common than in other countries.

Real-World Example

Liam, 26, has a strong credit score and applies for car insurance with monthly payments. The insurer performs a soft credit check and offers an APR of 9 percent on instalments.

Emily, 28, with a limited credit history, applies with the same insurer. She’s approved but offered an APR of 24 percent. Over a 12-month period, she ends up paying £120 more for the same level of cover.

How to Check If a Credit Check Will Be Performed

When applying for car insurance, you can:

  • Check the insurer’s payment terms to see if a credit check is required for monthly payments

  • Use comparison sites that clarify whether a soft or hard search will take place

  • Contact the insurer directly if the information isn’t clearly provided

If you want to avoid a credit check altogether, choose to pay annually, as this does not involve any borrowing or credit assessment.

Can Missed Payments Affect Your Credit Score

Yes. If you choose monthly payments and miss an instalment, it could affect your credit file. Monthly car insurance payments are treated as a credit agreement, so missed payments may:

  • Be reported to credit reference agencies

  • Stay on your credit file for up to six years

  • Lower your credit score

  • Affect your chances of getting other types of credit in the future

Setting up a direct debit or payment reminder can help prevent this.

Tips to Lower Insurance Costs If You Have a Poor Credit Score

  • Pay annually if possible — this avoids credit checks and interest charges

  • Improve your credit score by paying bills on time and reducing credit utilisation

  • Use price comparison sites to shop around for the best deal

  • Increase your voluntary excess to lower your premium (but be sure you can afford it)

  • Build a no-claims discount, which has a significant impact on premiums

  • Add a more experienced named driver, if applicable, to reduce risk

Final Thought

While your credit score won’t stop you from getting car insurance in the UK, it can affect how you pay for it, especially if you choose monthly instalments. Insurers and finance providers may use your credit score to determine the interest rate and whether you’re eligible for a monthly plan.

To keep your costs down, pay annually if you can, or take steps to improve your credit before applying. Understanding how your credit history fits into the process gives you more control — and could save you money in the long run.