How your credit score impacts your insurance – and vice versa

Since insurance is paid in advance, it may seem unrelated to your credit score. However, these two are in fact linked to one another.

We find out why insurers look at your credit score, and we have a look at how your monthly payments will impact your credit score, using car insurance as an example.

Tip: You can view your credit score for free through CreditSav. Sign up or login today.

Insurers consider your credit score

Wynand van Vuuren, partner of customer experience at King Price, says that insurance companies use a range of factors to assess your risk and determine the premium you will pay.

“For a car, this includes the security measures you have in place; the age, make and model of your car, your age and driving history, your accident and claims history – and your credit score,” says Van Vuuren.

He explains that your credit score is a powerful predictor of your financial behaviour. It shows lenders and financial institutions how likely you are to pay your bills or default on your debts.

“As such, when it’s combined with other factors, it tells an insurer how risky you would be to take on as a client, and this risk is reflected in your premium,” says Van Vuuren.

Carl Moodley, chief underwriting and claims officer at GENRIC Insurance Company, says that, to a lesser extent, your credit score could also indicate a propensity to commit fraud, such as lodging false claims and insuring “paper vehicles”, which are vehicles that don’t exist.

“It may also indicate a higher likelihood of a vehicle not being adequately maintained, which could result in road accidents and claims,” says Moodley.

Your car insurance payments may be reported to the bureaus

Herman Putter, CEO of ITC Credit Bureau, says that car insurance will only affect your credit score if your particular insurer reports all premium payments – and non-payments – to the credit bureaus.

“Not having car insurance should not affect your credit score at all, but it does increase your personal financial risk in the event of an accident or theft of the vehicle,” says Putter.

He recommends that you always manage your budget carefully and don’t enter into any financial agreements that you can't honour.

“If the premium you’re offered by an insurer doesn’t fit within your budget, rather buy a less expensive vehicle with lower insurance premiums until your income increases,” says Putter.

Van Vuuren points out that a negative credit score can take two years to fix. “The good news is that it’s easy to obtain your credit report,” he says.

He explains that you can download your credit report once a year, for free, from TransUnion.

Alternatively, you can sign up to a credit platform such as https://justmoneycreditsav.co.za/register and access your credit score for free, as often as you wish.