Your credit score impact the rate you'll pay on a credit card, car finance, mortgage or other financial borrowing. However, many people are surprised to learn that your credit score can also affect your ability to buy personal or business insurance. Here's how, and why improving your credit score is so important.
Tables of Contents
- Do insurers check credit scores?
- Do brokers check credit scores?
- Why is my credit score important to insurers?
- Can insurers penalise me for having a bad credit rating?
- Does poor credit impact my other policy premiums?
- What if I have poor credit?
- Does my credit score matter if I run a Limited company?
- What is credit insurance?
- Does an insurance policy help me improve my credit score?
- How can I improve my credit score by buying insurance?
Do insurers check credit scores?
Yes, insurers check the credit rating of any person or business requesting an insurance policy through them. This is usually a ‘soft’ check, meaning it won’t damage your credit rating. Often this process is automated in the background of the insurer’s quote software, but sometimes insurer employees will carry out checks using third party tools as part of the quoting process.
Do brokers check credit scores?
Yes, brokers check the credit ratings of any person or business requesting a quotation through them. Again, this is usually a ‘soft’ check which won’t impact the applicant’s credit rating, but as brokers then approach several insurers for quotes there is a chance that multiple credit checks will be carried out for brokered quotations, although these should all be ‘soft’ checks as well.
Why is my credit score important to insurers?
Insurers use credit scores as a character reference when deciding whether to quote, and what premiums to charge. Credit score not only demonstrates a person’s ability to repay extended credit (for example, monthly insurance instalments), it also shows whether a person can be trusted to repay their debts. Insurers may even decide not to quote a person or business with bad credit, or to increase premiums, or even to require payment up front rather than offering a payment plan.
Can insurers penalise me for having a bad credit rating?
Yes; insurers are under no obligation to provide payment plans, and credit history is considered ‘material’ to certain policy premium calculations. For example, you could argue that a person with an extremely poor credit history is more likely to suffer from financial issues in future, making them a riskier prospect for policies such as Professional indemnity or Directors and officers insurance.
Does poor credit impact my other policy premiums?
It depends on the policy but most insurers will check credit before offering terms. Individual underwriters may decide that they have a higher or lower tolerance for poor credit scores, but ultimately each insurance company and product underwriter has the ability to change insurance premium or acceptance criteria based on credit score. As a rule of thumb the better your credit score the better your chances of getting competitive insurance quotes.
What if I have poor credit?
If you have poor credit you may not be offered a premium instalment plan, your quoted insurance premiums may be higher or you may be declined outright for a quotation. If this happens to you it’s almost always possible to explain the circumstances and reasoning behind your poor credit rating to insurers and ask them to make an exception. Insurers often have trusted third parties they can refer you to who specialise in providing pollicies for individuals or businesses with poor credit, so it’s worth asking.
Does my credit score matter if I run a Limited company?
Yes, insurers will check your personal and business credit scores, in addition to reviewing Companies House records for any businesses you have owned or directed in the past. Previous bankruptcies, insolvencies, CCJs or generally poor credit scores for you, fellow directors or any previous company will usually require you to explain the how and why of each occurrence to insurers before receiving a quotation.
What is credit insurance?
Credit insurance is available as a risk management option for any business extending credit to third parties, as a means to make sure debts are paid if those third parties are unable to pay. Limited companies can sometimes fail through their customers going out of business, leaving debts behind. Credit insurance can help to maintain a good credit score for businesses by ensuring that bad debts are paid.
Does paying monthly for an insurance policy help me improve my credit score?
No. Typically your credit score will not be improved by paying for an insurance policy on a monthly basis. You can help to prevent your credit score from deteriorating through the use of a credit insurance policy, but buying an insurance policy on a payment plan from an insurer or broker is unlikely to improve your credit score.
How can I improve my credit score by buying insurance?
You can purchase an insurance policy on a monthly plan and then pay for it using a credit card. By using a personal or business credit card to pay monthly instalments for an insurance policy, you can improve your credit rating by paying the card balance in full every month after your insurance premium payments have been made.