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Here’s What You Need To Know About Bad Credit Car Insurance

By Wajahat Raja - Fact checked July 2023

Car insurance is indispensable for drivers since it protects them financially in the event of an accident, burglary, or destruction of their vehicles. However, individuals with poor credit often face challenges when seeking car insurance coverage. Fortunately, there are insurance providers who specialise in offering solutions tailored to those with less-than-perfect credit. 

Does Having Bad Credit affect Car Insurance?

Having bad credit can affect your car insurance rates. A bad credit score can result in higher insurance premiums. Insurance companies usually assign risk levels based on credit-based insurance scores, and individuals with poor credit are often considered higher risk.

What is Bad Credit Car Insurance?

A car insurance provider in the United Kingdom (UK) uses several factors to determine insurance premium rates. Some of these factors may include:

  • Driving record.
  • Penalty points.
  • Type and models of vehicles.

However, it’s important to understand that some insurance providers may use credit scores to determine premium rates and coverage options. Car insurance acquired at a low credit score is referred to as bad-credit car insurance. 

How is Bad-Credit Car Insurance Calculated?

Bad-credit car insurance is determined based on a credit-based insurance score. These scores are calculated based on a correlation analysis of an individual’s credit history and their chance of filing an insurance claim. It’s important to understand higher chances of filing a claim may lead to an increase in premium costs or difficulty in acquiring insurance coverage.

Is a Credit-Based Insurance Score Different From a FICO score?

Yes, the FICO score is a scoring method used to determine the creditworthiness of a borrower. The FICO score is calculated based on various factors such as payment history, outstanding payments, new credit applications and more. Whereas, a credit-based insurance score is different in the sense that it is determined based on the credit history and the likelihood of filing an insurance claim.

What are the Key Factors contributing to Higher Bad Credit Car Insurance Premiums?

It’s important to understand that one of the determinants of bad-credit car insurance premiums is the credit score. Therefore, all factors that determine positive and negative changes in an individual’s credit score can be understood to have a transitional impact on their car insurance premiums rates.

What are Some Alternative Options if I have Poor Credit and Need Car Insurance Coverage?

For individuals with poor credit, obtaining car insurance coverage can be challenging. However, some insurance companies offer usage-based insurance (UBI), where premiums are based on vehicle telematics. Some common examples of the telematic data used includes:

  • Acceleration.
  • Speed.
  • Breaking.
  • Miles driven.

How Can I Reduce Bad Credit Car Insurance Rates?

While it is possible for individuals with bad credit to acquire car insurance, their premiums rate may be higher. However, there are ways that may help such individuals reduce their car insurance premiums.

Some of the ways include paying for the coverage in one attempt and bundling up insurance policies. In addition, other factors, such as opting for less comprehensive coverage policies while increasing the excess amount, may help reduce insurance premium rates.

How you Can Improve Your Credit Score For Better Insurance Rates

You can check your credit score at Clearscore it is important to check for any mistakes as simple typo on your post code could affect your final rating. Also check any misleading details and report any mistakes that you find. Now take some positive steps to improve your credit report rating by :

  • Paying any bills on time
  • If you have a joint account, set up your own personal bank account so that you will not be affected by the actions of the other account holder 
  • If you are renting a property pay your rent on time, Landlords are able to your online credit records showing that you pay in time and this will improve your credit score over time

Should people with poor credit choose third party only insurance to reduce their premiums?

Traditionally, third party cover would always work out the cheapest and most affordable for those struggling with debt. However, as the number of claims being made by holders of third party cover has increased some companies have increased the price and if a few cases it can be cheaper to take comprehensive cover, plus you will get that additional cover for your own vehicle.

If I cancel my car insurance - will it affect your credit score?

If you cancel a car insurance policy, it should not affect your credit rating. In fact, you have the legal right to cancel any insurance policy in the first 14 days, the so-called cooling-off period. If you cancel after the 14 days as you have found a better deal taking into account the insurance provider will have fees that you will then be liable for so take that into account when weighing up any better deal that you may find. 

If you are searching for car insurance for bad credit, the best plan is to compare quotes for all three levels of coverage, third party, third party with fire and theft and comprehensive cover.  Then you can select out the provider that offers the best policy at the best price.

Pay Monthly Car Insurance

For many car insurance is expensive this is particularly true for young drivers, over 80's car insurance and those seeking car insurance with convictions to provide just a few example categories that may struggle to find affordable car insurance. For many pay monthly car insurance is the solution, it does add extra in most cases to the overall cost, but spreading the costs of 10 or 12 months does make it more affordable.

*51% of consumers could save £504.25 on their Car Insurance. The saving was calculated by comparing the cheapest price found with the average of the next five cheapest prices quoted by insurance providers on Seopa Ltd’s insurance comparison website. This is based on representative cost savings from September 2023 data. The savings you could achieve are dependent on your individual circumstances and how you selected your current insurance supplier.

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