Car insurance for drivers with bad credit

There are many factors that can damage your credit score, some of which might be beyond your control. This can include losing your job, or even a misunderstanding with your bank or a credit card company. We explain why your credit score can impact car insurance, and options if you have bad credit.

Credit scores and car insurance

A poor credit score can affect more than your ability to borrow money or apply for a credit card in the future – it might also affect your car insurance premiums or exclude you from some insurers.

However, you can still get car insurance with bad credit, you simply might have to do some more research. Below are some options and resources that can get you on the right track.

Why might insurers look at my credit score?

Finder’s insurance expert Ronny Lavie answers

Insurers look at a range of personal factors, like your age, occupation and the type of car you drive, before making decisions about your insurance. They might also run a credit check for you, to track your record of borrowing money and repaying it on time. This is because letting you pay monthly for your insurance is not unlike loaning you the money for the year.

That said, unlike with a loan, insurance companies can simply cancel your cover if you fail to pay your monthly premium on time, so this kind of lending is considered low risk for most insurers.

In most cases, you will still be able to split your premium into monthly instalments, but your insurance company might bring up the price a bit or make you pay a higher interest rate (interest often applies to monthly payments of car insurance whether you have bad credit or not).

This feels a little counter-productive. Although a bad credit history doesn’t necessarily mean someone is low on funds, some people who have a history of credit issues might struggle to pay a large lump sum upfront or pay more for a product. That’s why it’s worth shopping around to find an insurer who will let you pay monthly and won’t hike up the prices.

What factors affect car insurance rates?

Many factors play into what you pay each month for car insurance — some are under your control, and others aren’t.

• Location. Rural drivers typically pay less for their insurance than urban drivers. The fewer motorists you encounter while driving, the lower your accident risk.
• Driving record. The longer you go without an accident, the more likely you are to get a lower rate. If you have any recent accidents or tickets on your record, see if your provider offers a discount for completing a defensive driving course. By proving your worth on the road, you might be able to bring down your rate.
• Age and driving experience. Providers consider young and inexperienced drivers riskier on the road. If you’re aged under 25 or new to driving, ask a parent or family member if they’re willing to add you to their policy for potentially lower rates, or consider a policy where you get a telematic “black box” installed. This monitors your driving and can lower your premiums if you’re young but a reliable driver.
• Type of vehicle. Older cars, convertibles, high-performance or high-value vehicles and cars known for attracting theft and vandalism can be more expensive to insure.
• Vehicle value. Expensive cars can cost more to fix if damaged or cost more to replace if written off.
• Vehicle use. You’re likely to pay more if you use your car for commuting, rather than keeping it parked at home during the week.
• Vehicle security. If you park your car on the street overnight, it’s more vulnerable to break-ins or theft. But if your car is secured in a garage, your premiums could be reduced. Any device that could put off thieves, such as alarms, could also help to reduce your premium.
• Occupation and annual mileage. Teachers, accountants and engineers tend to get better rates, while certain professions mean more time spent on the road. You have to be honest about your job, but certain job titles will produce a lower premium even when describing the same job, so it’s worth running alternatives through a quote engine. When shopping around for a new provider, ask about discounts for low annual mileage to potentially save more.
• Claims history. If you’ve made claims in the past five years, this could increase your premium.

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Does insurance help your credit?

Paying monthly for a car insurance policy can have a positive effect on your credit score, as it counts as a kind of ‘instalment loan’. If you pay in full and on time every month, this can build up your credit score over time.

However, this will likely only help people who have a bad credit score due to a lack of credit history, as opposed to having things like missed payments or debt on their record. It is less likely that you will be offered monthly instalments if you have a history of debt, but paying in full for your annual car insurance if you can afford to do so is the best option either way.

Bottom line

Getting car insurance if you’re a driver with bad credit is not impossible and you might be able to pay monthly, though it’s likely a credit check would be involved.

Compare your options for car insurance with bad credit to find the best cover for you.

For more tips on keeping your rates low, read our comprehensive guide to car insurance.

Frequently asked questions

• What discounts can make my rates more reasonable while I rebuild my credit?

  There are a handful of special discounts to look for here. One is to move every form of insurance you have under one provider, which should net you a multi-line discount. You can also look into how your job field might get special consideration from certain providers; educators, health care employees, government workers and military veterans often receive discounted rates from large insurance providers.

• What do I do if i can't afford an annual car insurance payment?

  Many car insurance companies might still offer you monthly payments, even if you have bad credit. This is because car insurance doesn’t pose as much of a risk to companies as loans, for example. If you fail to keep up with your premiums, your car insurance can be cancelled and so the loss to the provider can be minimised.

  Paying your car insurance premiums in monthly instalments usually costs more in the long run, but it does save you having to fork out a large lump sum in advance.

• Should I opt for third party only insurance to lower the cost of my premium?

  If you really need to keep the cost of your car insurance down, taking out third party only car insurance is one way to do that. However, this is a risky option, as your car will not be covered for any damage or for theft. If the value of your car is low, this might not matter so much, but consider whether the cost of replacing the car with no help from your insurance company might be greater than the cost of the extra premium.

  It’s important to note that having bad credit won’t necessarily affect the cost of your premium anyway. Insurers take into account previous motoring convictions and points on your license when calculating your premium, but a bad credit history is more likely to affect whether you can pay monthly, rather than the quote you receive.

• Can I get car insurance with a CCJ?

  Yes, but you must declare it when applying for cover. The same is true for an insolvency order, unspent criminal convictions and cancelled insurance policies. Failure to do this can invalidate your policy.

  For some insurers, a CCJ might make you a higher risk customer and can push your premiums up. If the CCJ is related to a motoring offence or if you had a previous insurance policy cancelled by the provider, you might be looking at a particularly high premium.

  The best way to find out what impact your CCJ will have on your insurance is to compare quotes and see what you get back.

• Do car insurance providers check your credit rating before application?

  Car insurance companies perform what is called a “soft search” of your credit history when providing you with a quote. This type of check doesn’t affect your credit score and is only meant to check that you are who you say you are.

  If you choose to pay for your car insurance in monthly instalments, the insurer will usually run a “hard search” of your credit file, which will be visible to everyone who runs a credit check on you in future. Having too many of this type of search on your file can negatively affect your score.

  Paying for your car insurance up front is the best way to make sure it doesn’t impact your credit rating. However, if that is not an option for you, keeping up with monthly payments can also protect your score from slipping.

• What car insurance companies do not check credit?

  When you take out a quote for car insurance, the provider usually only does a soft search of your credit. This is only aimed at making sure you are who you say you are and doesn’t show up on or affect your credit score.

  If you opt to pay by monthly instalments, that’s when some companies might do a hard search of your credit, which will reveal your credit history and can affect your score. Paying upfront for your annual policy is a good way to prevent your credit history becoming an issue, providing you can afford to do so.

  If this is not possible, unfortunately, you will likely struggle to find an insurer that won’t check your credit. The good news is that you’ll probably still be offered cover, but it may be more expensive and you might not have the option to pay in instalments.

• What is the cheapest car insurance for bad drivers?

  If you’re a bad driver, you’re unlikely to find a cheap or possibly even affordable car insurance policy. This is mainly because bad drivers are likely to have a history or claims, points on their licence and even motoring convictions, all of which are likely to push up insurance premiums.

  If you’re in this situation and would like to reduce your premiums, you can opt to take out a further driving qualification, like an advanced driving course or a plus pass.

  Note that, if you repeatedly don’t keep to the rules of the road, then getting a black box policy is likely to make your insurance more expensive, rather than cheaper, as many insurers penalise customers for bad driving.