How And Why Insurance Companies Check Your Credit Report?

Do not get influenced by the claims insurance companies make in their advertisements. They may claim to offer a policy to everyone and at an attractive rate. However, after you provide your personal information and seek a quote, you will realise you are not getting the same rate as advertised. In some cases, your policy application may even be rejected. You may not realise it but the personal information you provide can be used to check your credit score and history. This credit report can affect at what rate you receive your policy or even if you are able to get one.

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Why Do Insurance Companies Run credit checks?

These companies are running a business so they have to assess the risks their customers pose. The insurance providers are not required by law to give their policies to every applicant. They have the right to reject the policy application. They run a credit check and other checks to assess the risks a potential policyholder poses to their business. Individuals with better credit score and financial history are given preference. The data shows that fewer claims are filed by people with good credit rating. Because of this, insurers first run credit checks on policy applicants before approving policies. They give the policy only if the applicant has good credit score. These companies want to avoid the risks of dealing with people with poor credit score.


Based Not Only on the Credit Score

The insurers do not take the policy approval decision based solely on the credit score of the applicant. They also check some other details like how many claims the applicant has filed against the insurance companies. They use different data of applicants for different policies. For example, data related to the applicant's age, type of car and driving record is checked for an auto insurance policy. Insurers do not reject policy applications of people with poor credit score all the time. Sometimes, they charge higher premiums to people who have bad credit score or other financial issues.


How Do Insurance Companies Check an Applicant's Credit Score?

There are four credit reference agencies in the UK - Equifax, TransUnion, Experian and Crediva. These four companies have authority to collect and store information related to the borrowers. They keep a record of financial behaviour and borrowing record. Whenever you apply for a credit card, loan or policy, the company receiving your application will run a credit check on you. It will check your suitability for its financial product by using the credit score data provided by one of these companies.


Insurance providers can use more than 30 points to assess a policy applicant. Individuals with good credit score can expect to receive a lower premium rate. The insurers evaluate all these factors and create their own credit score of the applicant. They use this evaluation to know early if an applicant poses a higher risk of filing a claim. This check is also performed to verify an applicant's identity. Individuals with poor credit score are forced to pay more for their insurance coverage. If you do not allow the insurance company to check your credit record, you may receive a higher quote for the premium.