Why Insurance Quotes Use Credit Checks

Posted by Jamie Mackenzie Smith in Credit Check on 8 March 2019

When you go online to get an insurance quote (be it home, car or most other products that involve a monthly premium) you may unknowingly be only a few clicks away from undergoing a credit check. Very often you won’t even see a specific notification before it happens unless you read through the company’s terms and conditions in their entirety.

Crucially, you do need to give your consent before your personal information can be accessed, but this is usually covered by acceptance of the wider terms and conditions. A 2017 study found that 91% of people don’t actually read the Ts&Cs before checking boxes like these, which is probably why most people are unaware that a credit check is involved at all.

Insurers aren’t obliged to offer everyone cover, which is why if you use a comparison site you might notice that often you won’t get quotes from all the insurers listed. This could be because you don’t fit the profile that particular insurer is looking for (based on things like age or the value of the item you’re looking to insure), your history of previous claims or simply that the risk is perceived to be too high.

Aside from reasons related to the cover, it is possible that your application for insurance was rejected due to something that cropped up during the credit check – particularly if you’re trying to spread payments over the course of the cover, rather than paying the premium upfront.

Why do insurers need to check my Credit Report?

Initially your Credit Report is checked by insurers as an extra means of verifying that you are who you say you are, and that the personal information submitted (such as your name, age and address) matches up.

This is known as an Enquiry/Quotation Search, (also referred to as a soft search) which unlike the types of credit searches carried out when you apply for finance such as a credit card or loan, doesn’t include information relating to credit accounts or your payment history.

An Enquiry Search will show insurers the following:

If you’re happy with the quote you’ve been provided by an insurer and you’d like to go ahead with the policy, you may be subject to an additional credit check, called an Application Search (also called a Hard Search). This allows the insurer to see your credit history in addition to the public information found on an Enquiry Search.

This practice isn’t restricted to just insurance providers either. Utility providers may carry out hard searches for the same reason.

As we’ve reported previously, you may also find that insurers you’ve had quotes from in the past could carry out annual credit checks to make sure your details are still correct before providing you with a new quote ahead of your renewal date.

Why is my Electoral Roll listing checked?

Your Electoral Roll listing is an important part of your Credit Report and also serves as another means of verifying that you live at the address given during the application. The Electoral Roll is particularly important when there isn’t much else on your Credit Report – for example if don’t have much in the way of a borrowing history.

Anyone eligible to vote in the UK is required to do so (you can be fined if you don’t), and local councils send annual reminders out to encourage people to register, so every effort is made to ensure it is up to date. That said, it’s not uncommon for entries to be missed, so it is an important element of your Credit Report to verify as correct.

Information relating to where you live will also play a part in the quotation, based on things like crime statistics and demographic data. You can check out how your own postcode is rated for free using our Postcode Check service.

Do insurance searches affect your credit rating?

Because most insurance providers use soft searches to provide you with a quote, they won’t have any impact at all on your credit rating or ability to get insurance or credit in the future. In fact, you’re the only one that will be able to see their search footprints when you check your own Credit Report.

When you apply to spread insurance payments across the year and an Application Search is subsequently carried out, it’s still highly unlikely that your rating will be affected by the presence of this type of search appearing on your Credit Report. These can have an impact if you accumulate a large number of application searches in a short space of time, but as a rule of thumb, you shouldn’t have a problem with normal levels of shopping around.

Does my Credit Score affect my insurance quote?

Your Credit Score is simply a guide to how a typical lender would interpret the information contained on your Credit Report. It’s up to each organisation to assess whether or not to accept an application, based on its own credit scoring criteria.

The premium itself will not be influenced by the information held on your Credit Report, but if you choose to spread the cost of insurance over the course of a year the rate of interest you are offered will be.

Paying monthly almost always proves more expensive than paying annually as a result of added interest, which means if you have a poor credit history you may see the interest rate adjusted upwards through a process known as ‘rating for risk’, increasing the total cost further. Rating for risk doesn’t apply if you’re paying for the policy upfront because the risk of payments being missed is removed, so the cost is not inflated.

Can I still get insurance with bad credit?

Because your Credit Rating doesn’t play a part in determining whether or not you are offered a policy, you should still be able to get cover even with negative information recorded on your Credit Report.

As mentioned above, a poor credit history does mean that you’re likely to be offered a higher rate of interest if you choose to pay monthly, or in some cases you might find that option taken off the table altogether.

How can I see the information that a potential insurer will see?

You can see the information that will be assessed as part of both an Enquiry Search and an Application Search when you check your own Credit Report. As well as checking for your Electoral Roll status and for any Court Information, you’ll also be able to see how a typical lender would assess you based on your payment history.

If you haven’t already, you can try checkmyfile FREE for 30 days , then for just £14.99 per month after. You’ll be able to see information from all 4 Credit Reference Agencies, not just 1.

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