Can your insurance application be rejected because of your credit score?

By Athenkosi Sawutana

A credit score is used by lenders to determine how likely it is that you will repay a loan on time. It is also a factor in interest rates and loan qualifications.

But can it be used to determine the success of your insurance application? JustMoney spoke to insurance experts to find out.

Tip: Register here to get a free credit report.

Do insurers check your credit score when you apply for insurance?

“Insurers can and do check credit scores,” says Ayanda Ndimande, head of branch lending and strategic business developments at Sanlam. “This allows them to assess the level of risk a client could be from a regular payment of premium perspective.

According to Christelle Colman, Old Mutual Insure spokesperson, this information plays a role in determining charges for premiums.

“Credit-based insurance scoring models are built to predict the likely 'loss relativity' of a customer. Loss relativity measures whether the cost of the customer’s insurance claims, relative to their premiums, will be higher or lower than average,” she says. 

Which factors determine your credit score?

Knowing the factors that influence your credit-based insurance score, says Colman, can help you work towards securing the best insurance premiums. These factors include a long-established credit history, no late payments or past-due accounts, and open accounts in good standing.

Credit-based insurance scores do not factor in the person’s job, income history, gender, or any other personal information, she says.

Can your application be rejected by insurers if your credit score is poor?

According to Ndimande, a poor credit score can negatively impact the rate offered by the insurer, but it’s unlikely that the application can be denied based solely on a poor score. Other factors insurers consider include past-due payments, accounts in collection, a high amount of debt, a short credit history, and a high number of credit inquiries. 

“Where a potential client has a bad credit score but meets other requirements, the insurer can proceed to offer a policy,” she says.

If the insured has a high credit-based insurance score, an excellent driving history and zero claims on record, they'll typically qualify for the best possible premium. However, if they have an excellent insurance score but a less-than-stellar driving history, for example, they might be considered riskier to insure. As a result they will pay at a higher rate, adds Colman.

”Tracking and proactively responding to problems in your credit report can be an effective technique to secure a better premium,” Colman advises.

To access your credit report, register here.

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