Does Credit Score Impact Car Insurance?

While availing of any financial service, such as borrowing a loan or purchasing car insurance, you came across numerous related terms. One such common term is “credit score." But what exactly does this mean? A credit score is a tool used by car insurance companies to assess the financial compatibility and creditworthiness of individuals before issuing car insurance policies. It plays an important role in determining the price of your insurance plans. Read on to find out how credit scores impact car insurance and other details. 

What is a Credit-Based Insurance Score? 

A credit score is a tool that assesses an individual’s ability to pay off bills and other debts. It is determined by the financial history of an individual. Generally, the credit score is assigned between 300 and 900. The higher the credit score, the easier it will be to get loan approvals and car insurance policies. For instance, an individual with a credit rating of 800 will get their car insurance policy issued quickly as compared to those with a rating of 600. Credit Information Bureau (India) Limited, also known as CIBIL, is responsible for calculating the credit rating of an individual. 

How Does Credit Score Affect Car Insurance Premium? 

A credit score helps financial institutions determine the risk that any individual may pose to them. As a result, credit rating is an important factor considered by insurance companies when determining premium amount. In simple terms, the insurance company assesses your ability to pay car insurance premiums. Henceforth, you can reduce your car insurance premium by maintaining a good credit score. Generally, a credit score above 750 is considered good by car insurance companies and other financial institutions. 

Difference Between Credit Score And Credit-Based Insurance Score

A credit score is considered by financial institutions to determine interest rates and loan qualifications, whereas a credit-based insurance score is used by insurance companies to calculate the insurance premium. The credit score is calculated based on parameters like loan/EMI payment, credit utilization, credit duration, and others. However, insurance companies evaluate a person's credit score in light of their financial history. 

How To Check Credit Score? 

It is quick and easy to check your credit score online. It is a free tool that anyone can use to know their credit score in a few minutes. Listed below are the steps you can follow. 

• Log in to any website offering free credit score check facilities. 
• Enter the required information like your name and phone number. 
• Click “submit.” 
• The tool will calculate and display your credit score on the screen. 

You can also buy premium plans offered by credit score check companies to get more in-depth details about your credit rating. 

Tips To Improve Your Credit Score 

Listed below are tips that you can use to improve your credit score and reduce your premium for car insurance policies. 

• Pay EMIs and credit card bills on time. 
• Do not open multiple accounts within a short time span. 
• Avoid taking loans and applying for credit cards regularly.
• Do not take debt extension to repay the amount. 
• Use your credit card within 30 per cent CUR. 

Conclusion 

In conclusion, it is crucial to have a good credit score to save on your car insurance premium amount. Though it may take time to improve your credit rating, but it is recommended to take preventative measures as soon as possible.

Also Read: 

Explained the meaning of subrogation in insurance with an example