Bad credit is like a bad smell that keeps following you around. It’s something that you can get rid of and improve, but by just letting it fester it won’t get any better. Every person has a credit score, think of it as a footprint that you leave on the financial world. Check out our service page if you need further details on bad credit car finance.
Your transactions, failures to pay, and borrowing agreements leave a mark that determines whether you are a good or bad person to lend money to. But could it affect you in getting car insurance?
Do you need car insurance?
In the UK, car insurance is a legal requirement. It means that you cannot drive a vehicle on public roads or land without it being insured. If caught driving a car without insurance you could face a large fine as well as a suspension on your driving licence – preventing you from driving for a period of time. The car you were driving may also be seized, and in a case where you cannot afford to have it returned to you, it could be sold or destroyed. All of these penalisations are hypothetical, based on if you get caught, but you’d do well to remember them. It’s far easier to get insured than run the risks mentioned above
How can you pay car insurance?
Car insurance lenders will allow you to pay for your car insurance directly in two different ways. You can pay for your insurance in one lump sum or you can choose to spread your payments; typically this is over a 12 month or 10 month period. Of course, if you choose to pay monthly you’ll pay more due to interest rates. However, with car insurance being expensive it may be your only option. It’s legally required so what happens if you can’t get it due to bad credit?
Why lenders may refuse to give you car insurance
Having bad credit tells lenders that if they allow you to borrow money you may not pay it back. Financial agreements aren’t always obviously borrowing money or a physical product, but car insurance is ultimately recognised as a product and by obtaining it before paying for it, you’re entering a ‘borrowing’ financial agreement.
In order to get car finance on a monthly payment agreement you need to be approved. Bad credit inhibits your ability to borrow. As a result lenders may refuse to give you the insurance or if you’re lucky they will just be charging you a higher rate of interest. This is to cover any lost costs should you suddenly stop paying. One way to obtain car insurance with poor credit is to simply pay it off at once. But if you can’t do that, you might want to start improving your credit score.
What is bad credit?
Your credit history generates a score anywhere from 350 to 800. Anywhere below 580 is unofficially noted as bad. 580 to 699 is fair. 670 to 739 is good. 740 to 799 is very good and upwards of 700 is excellent. Most of the population will sit in fair and above. Believe it or not, it takes a fair amount of work to get your credit score below 580 but it happens.
Every time you borrow money, take out a loan or enter into a financial agreement, you add a mark against your credit score. This means that if you always pay for items outright, you probably don’t have a credit score. This might seem positive but in fact, it makes it difficult for lenders to determine whether you’re a sound investment or not. So it’s important to create a credit score, but make sure it’s the right one. You don’t want to end up with bad credit.
How do you get bad credit?
Bad credit isn’t something that happens overnight necessarily, but there is the possibility for it to happen in a short amount of time. Missing payments, even if you eventually end up making them, can put a negative tint on your credit score. This is why it’s important to not bite off more than you can chew so to speak when it comes to entering agreements. Knowing your limits and what is or isn’t affordable is essential.
Another way of harming your credit score is borrowing a lot of money all at once. For example, if you enter into an agreement for a new car, new kitchen, new phone and then apply for a new credit card in one week, there’s a high chance you’ll be rejected. This is because entering into these agreements aren’t always distinguished by what you’re buying but more by the fact that you can’t afford to pay for it right now. Which tells lenders you probably shouldn’t be borrowing it either.
How to improve your bad credit score
It’s easy to harm your credit score but it’s also relatively simple to improve it. All it takes is a little focus and perseverance with your finances. We like to think of it as getting organised.
The first thing you should do is catch up on any missed payments and set up direct debits. This way you can make sure that all your repayments are made on time for every instalment. It might be monthly or every other month, but a direct debit is a quick way to get organised and no longer rely on your memory.
Another way to improve your credit score is to keep your borrowing to a minimum. That means if you can afford to pay off a financial agreement in full next month – do it. That completion tick against your profile will go a long way.
What will also go a long way is registering on the electoral roll. This gives lenders a sense of security knowing exactly who they are lending money too.
There are more tips out there for improving your credit score. Credit check companies such as Expedia allow you to have a 30 day free trial. During this free trial period, take on board all the suggestions they have and make them work. You’ll be approved for car insurance again in no time.
