Credit Score Basics > Will a missed insurance payment hurt my credit score?

Will a missed insurance payment hurt my credit score?

In most cases, a missed insurance payment won’t affect your credit score. That’s because most insurance policies do not show up on your credit report. If you stop paying your premiums, the worst thing that can happen is losing your coverage.

This applies to:

• life and accident insurance,
• health insurance,
• travel insurance,
• property insurance,
• civil liability insurance, etc.

The main exception you should be aware of is monthly car insurance.

If you pay for your car insurance in one lump sum, you can't miss a payment, and of course, your credit score won't be affected at all. But if you pay your car insurance monthly, missing a payment can indeed affect your credit score.

How can a missed car insurance payment affect my credit score?

When you buy car insurance, you usually have to do it for a whole year – it's a legal requirement.

However, if you want to pay it month by month, then your insurance provider ends up giving you a loan for the whole yearly insurance amount. You're entering a credit agreement with them, even if you might not know it.

This can mean a couple of things.

First, when you apply for monthly car insurance, the provider will have to run a hard check on your credit file. Hard checks stay on your file for up to 2 years, and too many in a short amount of time can hurt your credit score.

Second, you'll be paying interest. In fact, most monthly car insurance plans charge 30% to 50% interest per year, making the insurance more expensive and harder to pay.

Third, the car insurance amount will appear as a credit agreement on your credit file. This might reduce your debt-to-income ratio, which is what lenders look at when they determine whether you can take on more debt.

Finally, any late repayments to your car insurance policy will cause your credit score to go down. Too many late repayments, and you might even be sent a default notice, which gives you 14 days to pay back the amount, or your policy will be cancelled.

Once your policy is cancelled, not only do you lose insurance (so now it's illegal to drive) but the default is also recorded in your credit report.

A default, according to Experian, can cost you up to 350 points out of a maximum of 1000. You might even be taken to court, which can take another 250 points from your credit score.

How long do missed car insurance payments stay on my credit file?

Like any late payments, missing car insurance payments stay on your credit report for six years.

Once there, the only way to remove them is to prove that they were an error – for example if the insurance provider made a mistake.

You should check your credit report regularly to ensure this doesn't happen. If you spot anything odd, contact the car insurance company and the credit reference agencies. They'll help you get it sorted.

How can I reduce the impact of missed car insurance payments on my credit score?

There are five things you can do to ensure that car insurance doesn't accidentally ruin your credit score:

1. Pay for a whole year upfront. This is the best solution: it's cheaper, and the policy won't show on your credit report.
2. If you buy a monthly plan, set a Direct Debit to ensure you're paying the car insurance on time.
3. If you miss a payment, pay it back before your account goes into default – so before the 14 days after the default notice is sent.
4. If you ever miss a payment or enter default, contact the credit reference agencies (Experian, Equifax, and TransUnion) and add a Notice of Correction to your report. This is a 200-word note that lets you explain in your own words why you fell behind. Future lenders might be understanding if they know you couldn't pay because you faced an illness or redundancy.
5. Finally, keep working on your credit score.

Here are some ways to repair your credit score after missing a car insurance payment:

• Register to vote at your current address. It only takes a few minutes and can add up to 50 points to your score.
• Consider a credit-building credit card. Just be careful – they have very high interest rates and fees. Some charge up to 60% APR.
• Download a credit-building app like Wollit. Unlike an expensive credit card, Wollit reports your monthly subscription as a loan repayment, rebuilding your credit history and repairing your credit score in the process.

• Credit Score Factors