MOTORISTS could be paying up to £1,100 more a year for their car insurance if they’ve got a poor credit score.
That’s the findings of new research from credit score company ClearScore, which analysed price comparison quotes for more than 9,300 people.
It found that those with a high credit score of between 600 and 700 pay £397 on average for an annual policy paid upfront.
But those with a low score of between zero and 100 typically pay £1,494 for the same policy.
And it seems your premiums fall as your credit score improves, as those with a score of 300 to 400 were quoted £936 on average, while those with a score of 500 to 600 saw an average cost of £501.
Despite this, a separate survey by ClearScore found that 75 per cent of drivers were unaware that their credit score is linked to their car insurance premium.
How to boost your credit score
WHILE there is no credit blacklist which bans people from any sort of borrowing at all – if you have struggled in the past you may find lenders won't consider you.
If that’s the case then there are steps which you take to help improve your rating:
- Get on the electoral register. This proves who you are and where you live meaning it’s easier to get credit if you’re on the list. Also check the electoral role for any errors. You can sign up by registering to vote.
- Don’t make too many credit applications. Making lots of requests in a short period of time can be seen as a sign of financial distress – and each application will be recorded on your file. Use a “soft-search” eligibility calculator to show how likely you are to be accepted.
- Always pay your bills. Late payments are also recorded on your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt. Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.
- Use a credit-builder credit card. These cards tend to have high interest rates compared to normal cards but if you can show you’re a responsible spender with them, it can improve your chances in the eyes of lenders.
And just 9 per cent said they’ve taken steps to boost their scores in order to lower their premiums.
Industry trade body, the Association of British Insurers (ABI) has confirmed that insurers can use credit scores to determine prices but adds that this is up to the insurer and there will be lots of other factors involved.
With ClearScore’s data, for example, people were chosen at random, so age, location, job, driving experience and no claims discounts will also have had an impact on quotes.
But despite insurers checking your file, this is likely to only be a soft search meaning it won’t impact on your score itself.
Typically, the only time a car insurer will carry out a hard search is when you opt to pay for car insurance on a monthly basis as this is effectively a loan.
This means it could affect your score and other lenders will also be able to see it.
How to cut the cost of your car insurance
THERE are lots of ways to bring premiums down but here are some of the best:
- Save £88 – by using the right job title. Your occupation is one of the major pieces of information insurers use to work out your insurance premium. Ultimately, some jobs are viewed as more “risky” than others. But sometimes there’s more than one job title on the pre-defined list that accurately describes what you do. Picking the right one could lead to significant savings. For example, someone who selects “chef” could pay as much as £88* more than someone who selects “kitchen staff”. Other jobs that tend to have a lot of similar options include office work, building and construction, teaching and journalism. Don’t lie about your job though – you’ll invalidate your cover.*Based on a 31-year-old male, living in Reading, driving a Vauxhall Corsa.
- Save £520 – by adding a more experienced driver to your policy. Inexperienced and young drivers typically face the highest premiums but could save up to £520* by adding more experienced drivers to their policy. While new or younger drivers are likely to see the biggest savings, this applies to everyone, even if you’re seen as a low risk driver yourself. Make sure you’re not illegally “fronting” though, which is where younger or less experienced drivers claim to be the ‘named’ – additional driver, when they’re actually the sole or main user of the vehicle.*Based on an 18-year-old, living in North London, driving a Vauxhall Corsa.
- Save £76 – by planning ahead if you buy in advance. While people rarely look forward to buying insurance, getting it done as early as possible could save you more than you might think.On average, Go Compare found car insurance is £76 cheaper if bought a week before its start date.
- Save £120 – by paying annually. Paying monthly is convenient and affordable but it’s almost always more expensive than paying for your insurance in one lump sum. Paying annually could save you around £120*.*Based on a 31-year-old, living in Newport, driving a Vauxhall Corsa.
- Save £280 – when you shop around. The only way to make sure you’re securing the best deal on your car insurance is to shop around – and the good news is, it only take a few minutes. Try comparison sites such as Go Compare, Compare the Market and MoneySupermarket.
Justin Basini, co-founder and chief executive of ClearScore said: “A lot of us will cut down on the miles we drive or add another driver to a policy to reduce our car insurance premiums.
“Yet very few of us will take steps to improve our credit score, as most are unaware the elements within it can affect the price we pay for insurance.
“But with premiums on the rise, now is the time to take control over yours – whether it’s shopping around at renewal to find the best deal or improving your credit score.”
Malcolm Tarling, spokesperson for the ABI, added: “Motor insurance is fiercely competitive, with different insurers taking into account a wide range of factors which they see as relevant to the risk.
“Your credit rating may be relevant, where, for example, you are paying for your motor insurance in monthly instalments.”
See the boxes above for tips on boosting your credit score and cutting your car insurance bills.
More on car insurance
Car insurance costs could rise by up to £75 a year after a rule change to how some prices are calculated.
There’s also been a huge rise in extra charges from car insurers, which has added £140 a year to bills.
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