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Can Insurance Quotes Make My Credit Score Worse?

Find out what does and doesn’t influence your credit score in South Africa and how your credit score is connected to your insurance.

To qualify for a loan and get a good interest rate in South Africa, you will need a good credit score. If you’re looking for ways to improve your score, you may wonder whether getting insurance quotes can help or make things worse. South African insurance providers look at your score when calculating your premium, and it can be connected in some ways to your insurance. Find out everything you need to know below.

What is a Credit Score?

A credit score is a number designed to rate how much of a risk you are when borrowing and to predict how likely you are to pay your debt. Banks and financial institutions use varying methods to calculate your score, but a common method used in our country is called the Delphi system.

A high score indicates that you are a low risk, and you will be more likely to receive loans with good interest rates. A low score means you are a high risk, and it may jeopardise your ability to get a loan. A good credit score comes in handy when applying for a home or vehicle loan.

Why are Credit Scores Important?

A good credit score is like a ticket to a more secure future. It is of such immense value, because with it you are more likely to qualify for future credit and receive better interest rates. If you should run short financially at some stage, you can rest assured in this knowledge.

How Is Your Credit Score Calculated?

When allocating your credit score, creditors look at your credit report. This report is a full record of your financial history or credit history. They will look at everything from your payment history to amounts you owe, judgements and defaults, your accounts, and finally occasions when companies asked to see your report. They will consider all these factors before scoring you.

This means that each time you apply for credit and a company views your report, your score will be temporarily lowered. Applying for loans can, therefore, negatively affect your score temporarily. Some people worry that, similarly, requesting insurance quotes could negatively affect your credit record.

How Does an Insurance Company Use Your Credit Score?

The good news is that requesting insurance quotes will not affect credit scores! This is because an insurance company uses what’s called a “soft-pull” to view your credit report. A soft pull is a request to view credit reports that you can see but that lenders won’t see. Thankfully, it doesn’t change your score at all.

Insurance companies look at different things on your credit report than creditors do. What they’re looking for is evidence that you will be a good customer, one who is less likely to claim and more likely to pay on time. They may use data such as your recent applications for credit, how much you actually use on credit cards, how many and what types of loans and bad credit accounts you have, how much debt you have, and whether you have past foreclosures or bankruptcies.

This process provides the insurer with a credit-based insurance score for you that determines the level of risk you pose. Most South African insurance companies use this kind of risk assessment when offering you an insurance quote. This score also affects the monthly premium you will pay. If you are calculated as being a higher risk customer, your premiums will most probably be more expensive.

Is Your Insurance Credit Score the Same as Your Personal Risk Profile?

Your personal risk profile is not the same thing, but it is also an influencing factor when insurance providers determine your monthly premiums or insurance rates. Your personal risk profile is determined using your income level, personal information, and age. Things like the type of car you drive or the level of security at your home can also play a role, depending on the type of insurance policy.

3 Other Things that Do Not Affect Your Credit History

Other than requesting insurance quotes, there are a few other things you may be surprised to learn do not affect your credit score.

1. Not Paying Rent on Time.

Your credit score is safe, but if you don’t pay and the landlord on time, they may want to take legal action. This legal action could end up influencing your credit score or you may be evicted.

2. Swiping Your Debit Card.

Debit cards aren’t like credit cards. With a credit card, you’re using borrowed money that you will need to pay back, but with a debit card, you’re using your own saved money. The only way your debit card could affect your credit score is if it’s connected to an overdraft facility.

3. Unpaid Municipal Accounts.

As with the above, not paying your municipal account may not influence your credit score, but the consequences remain. Your utilities may be turned off by the municipality and send your account to a debt collection agency.

DISCLAIMER: The information provided in this article is meant for informational purposes only and should not be construed as legal, medical, or financial advice. Facts stated in this article are correct at the time it was published.

Sources: NerdWallet; oldmutualfinance;

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