A credit score is a common term that you may encounter when seeking financial services. Credit scores are important when borrowing money, applying for a credit card, or purchasing car insurance online or offline. How does your credit score affect your car insurance? Continue reading to find out the answer!
Before delving into the financial terms associated with credit score, let’s examine how credit score and car insurance are related. Simply put, the credit score determines the risk factor associated with the customer and is taken into consideration when the insurers calculate car insurance premiums for the customer. However, the extent to which credit score matters in car insurance is still being resolved.
What is a credit score?
A credit score is numerical data of a person’s creditworthiness. In other words, it reflects a person’s ability to repay debts/bills. An individual’s financial history in regard to credit, also known as a credit rating, determines it. The following factors determine the credit score.
- Current debts and loans
- History of debt/loan/bill repayment
- Credit that is currently available
A credit rating is a numerical score ranging from 300 to 900. A high credit score makes obtaining loan approvals and credit cards more accessible. Credit rating is also known as CIBIL credit score because Credit Information Bureau (India) Limited (CIBIL) is responsible for calculating a person’s credit score.
What effect does your credit score have on car insurance?
A credit score determines the financial risk you may pose to a financial institution or company and an insurance provider. As a result, credit rating is one of the most critical factors in determining insurance rates or premiums. Buying car insurance online or offline is a line of credit in some ways, and your credit score reflects how well you manage your credit lines.
You can calculate car insurance premiums online with the help of a car insurance calculator. However, it may not take the credit score into consideration.
How can your credit score help you save* money on car insurance?
A good credit score can help you get a good insurance score. The insurance score is calculated by considering an individual’s credit history. So, if you have a good credit rating, you may get car insurance at a lower premium.
If you have a low credit score, you may have to pay a more significant premium, which may increase if you opt for add-ons such as zero-dep insurance for a car.
Quick questions you may have –
- Is getting a car insurance quote going to hurt the credit?
No, getting a car insurance quote does not affect your credit. Car insurers use a soft pull to check your credit, which does not provide a complete credit history and has no effect on your score.
- Does car insurance have an impact on credit score?
Getting car insurance should be fine with your credit. If you miss a payment, the insurance company may report it to credit bureaus, lowering your credit score.
- Does switching car insurance affect your credit score?
No, changing insurance providers or policies do not affect your credit score.
As an individual, you may believe that a credit score is only required to obtain easy loan approvals and credit cards or for car insurance renewal. However, there is a broader picture of how credit score affects car insurance. Improving your credit score may take some time, but the benefits are well worth the effort.
Your credit score can help you save* money on car insurance and get better coverage for your vehicle. Keeping your financial records clean is critical because it affects your credit score.
‘Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.‘
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply