Date:14 January 2011 I Comments: 4 I Views:16,252

Credit ratings and car insurance, two staples of modern life and two things that cause many people no end of worry! And, just to add to that worry, insurance companies are now using your credit score to help determine the cost of your car insurance!

Which means that you could be a model driver, with no claims or convictions and may never even have had so much as a parking ticket, but if you mess up your balance transfers or miss a couple of credit card payments shortly before renewing your car insurance, you could find yourself paying an inflated price for your premium!

The fuzzy logic behind this is an assumption that if you’re careful with your money you’re careful with your car…and, conversely, if you’re reckless with your money you’ll be reckless with your car!

This is a system that has been in place in the USA for some time now and the assertion that a reckless spender is a reckless driver is one that was supported by Donald Hanson of the National Association of Independent Insurers.

Mr Hanson said: “Research indicates that people who manage their personal finances responsibly tend to manage other important aspects of their life with that same level of responsibility and that would include being responsible behind the wheel of their car or being responsible in maintaining their home.”

So, according to Mr Hanson, if you have a bad credit score you’re a rubbish driver and you live in a slum!

And, as usual, where America leads the UK follows and so many people that are already in financial difficulty are finding that they’re being squeezed for even more money by this, seemingly arbitrary, pricing system.

But this system is already in place so it’s worth knowing factors that can affect your credit score so you can avoid having it adversely affected.

Below are a few factors that can have an effect on your credit rating, some being more obvious than others:

  • Missing or making making late payments on credit card bills, finance arrangements, utility bills or mortgage payments (in the past only missed payments were noted but now it’s late payments too).
  • Being close to the limit on your credit cards or overdrafts.
  • Having a short credit or no previous credit history.
  • Applying for a number of credit lines in a short space of time.
  • Not having a variety of credit lines, for example, installment loans (fixed payments such as car finance) and revolving loans (unsecured borrowing such as credit cards).
  • Declaring bankruptcy. 

So if any of the above relate to your current circumstances then you could be further penalized by your insurance company issuing you with a higher premium.

But there is a fairly simple, if not failsafe, way around this…buying your car insurance online.

Many companies that advertise and broker do not undertake credit checks as part of their online service so, if you buy car insurance via a comparison website, there’s a good chance that your credit score will not be factored into the price of your premium.

The failsafe, though potentially less straightforward, way around this is to maintain a healthy credit score and not run up unsustainable levels of debt!

In any case, it’s always a good idea to keep your finances in check and buying car insurance online is often the easier option!

Article by Les Roberts, car insurance and finance writer at

Category: Insurance


  1. Whilst I agree with your sentiments in this article I have to add that, given the current economic climate, many people are going to struggle to keep their finances in check. With the growing rate of unemployment it’s going to be interesting to see how badly people’s credit scores are going to be impacted over the next year or so.

  2. The use of credit rating to judge a borrower has been argued for a long time. Putting borrowers into categories based on their credit conduct seem a little harsh. But borrowers, in this case the insured, has to understand that if an insurer has never dealt with a certain customer before, the only way that they can judge the conduct of the customer is to rely on reliable documented information like a credit rating. This will be especially so if the customer is a completely new customer. I’m sure a lot of thought was put into using credit ratings as a determinant of premium.

  3. I’ve been hearing a lot about using a prepaid credit card to improve your credit rating? Apparently just by having one, over the course of a year you can better your poor credit score, i just wondered if you or anyone else has had any first-hand experience with this?

  4. The only justification I can see for an insurabce company looking at a persons credit score / history in order to determine the premium is if they are offering the person monthly payments. If they are asking for the full premium upfront then there should be no reason to check on the person’s credit before deciding the premium.