Do insurance claims affect your credit score?

It’s wise to avoid claiming from your insurance for an incident where minimal damage has occurred – particularly when the cost of repairs is more or less the same as your insurance excess. Claims increase your profile risk, meaning you will cost more to cover as a client, which can raise your premiums.

However, you may wonder, can claims also impact your credit score? We find out how insurance relates to credit scores, and we consider the impact of claiming too often.

Tip: Have you viewed your credit score recently? Register with JustMoney to get free, immediate access.

The link between insurance and credit scores

When you take out insurance, your chosen provider may request your credit score to help them determine whether you’re diligent with paying your bills.

When they make this enquiry to the credit bureaus, your credit score may drop slightly. However, as you pay your monthly premiums, and assuming your insurance provider reports this to the bureaus, your credit score will increase again, and likely improve beyond its initial point.

Should you default on payments, it’s more than likely that the bureaus will be notified. Given that a claim increases your profile risk, it may seem reasonable that this too would be reported. However, Sheila-Ann Robey, financial adviser at Lifeguards, an affiliate of Liberty, says that this is not the case.

“A credit score is a rating that determines a consumer's creditworthiness and it’s based on, among other things, your credit accounts, amount of debt, and repayment history. Credit providers will use credit scores to determine the risk in providing you with further credit,” says Robey.

She explains that if you damage your motor vehicle, for example, and claim from your insurance, the claim won’t be reported to the bureaus and, therefore, it won’t impact your credit score.

“An insurance claim is not one of the factors that are considered when determining your credit score. This means that credit bureaus don’t collect or consider this information,” says Robey.

What then are the implications of an insurance claim?  

Robey says that, besides a potential increase to premiums, and a loss, if applicable, to your no-claim bonus, any claim made is noted on a shared database.

“Your claims history is accessible to all insurers and the information impacts your risk when applying for insurance. As a result, an extensive claims history will negatively impact your risk rating and increase your insurance premiums – or perhaps render you uninsurable,” says Robey.

She explains that it’s important to discuss these factors with your short-term insurance broker and to ensure that the information reflected on the database is correct.

Make sure your credit score is on the rise. Visit JustMoney to find out more.