How your credit history affects your insurance application


How your credit history affects your insurance application

You are probably aware that your credit history can have an impact on your ability to borrow, as well as the interest you’ll be charged and the terms lenders will offer you. But can your credit history affect whether you’re able to take out insurance too?

Get it covered

Thanks to the internet, it’s never been easier to compare insurers and track down the policy that offers what you need for the best price. If you own a car, house or gadget, you’ve probably used a price comparison website at some point to check you’re getting the best deal on insuring it. In fact, you may own none of these and still have an insurance policy to cover something.

So far so good, but as you search insurers, you may not be aware that they can also search you – or at least perform a credit history search. If you’re thinking of applying for credit in the future, you may be concerned that these searches could affect your ability to be accepted. And you may also worry that you’ll be turned down for insurance because of a poor credit history.

For the answers to these questions, read on.

Will you be accepted?

There’s no guarantee that you’ll be accepted for an insurance policy – or at least the one you want. Perhaps you have a medical condition that will make your quote for life insurance more expensive, or you live in a property in an area that’s at high risk of flooding and you’re finding it hard to get an insurer as a result.

One of the factors that insurers will take into account is your credit history. Some insurers may have a policy of not providing you with a policy if you’re bankrupt, for example. The good news is that not all insurers take this stand.

If you prefer to pay for your insurance monthly, your credit history is more likely to be a deciding factor in whether or not you’re offered the option of paying this way. Often known as a premium payment plan or instalment plan, this option allows you to pay your insurance premium in monthly instalments, rather than upfront, so it can make budgeting easier.

Whether you pay your insurance all at once or by direct debit, you will pay the same premium. However, you could be charged a lot of interest if you pay monthly, so ultimately you’ll end up paying more. And your credit history may be used as a deciding factor in how much interest you’re charged, so while a poor credit history may not stop you getting insurance, it could make it more expensive or you may not be offered the option of paying monthly.

Is it safe to shop around?

As with most financial products, it’s a good idea to shop around when looking for insurance so you can be sure you’re getting the best deal for you. However, you may have heard that some insurers run a credit check on you when you search through a price comparison site. If you’re thinking of applying for credit in the near future, could these searches affect your chances of being accepted?

The answer is: probably not. Searches on your credit history are categorised as either ‘soft footprints’ or ‘hard footprints’. A soft footprint usually appears on your credit history as a result of searching for products on a price comparison site but – and this is important – whilst you can see it on your credit history, other lenders can’t, so they aren’t able to take it into account when they decide whether or not to lend to you.

A hard footprint, on the other hand, is taken into account, but this is only left if you have actually applied for credit. Too many applications for credit can make you appear desperate for money (even if you’re not) and may act as a warning to lenders. A soft footprint is not seen in the same way, so don’t be afraid to shop around to find the right home or car insurance policy for you.