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  • Does Credit Score Affect Car Insurance Premium?

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    Every person who has a credit card or a loan or more than one bank account will have a credit history. A credit score is a number which represents your repayment capacity and consistency which will be considered by the financier or the bank while lending you money. Credit score is calculated based on many variables like payment history, number of accounts, loans, repayment capacity and consistency, etc. Credit score will always affect the interest rate you pay to the financer to repay the loan. A good credit score is considered to be in between 700 to 850. Few banks consider credit score even at 600 and above to approve the loan but majority banks and financial institution prefers a credit score above 700. Your credit score is also a deciding factor as whether or not you will be eligible for a loan.

    As you may already be aware while calculating the car insurance, not just the value of the car which is taken into consideration, there are many other factors like RTO registration city, city of residence, age, cubic capacity of the vehicle, claims history, driving record and other factors. But what you may not know is that your credit score is also taken into consideration while calculating the car insurance premium. The extent of consideration is unknown, but the insurers think that this could be an indication of risk involved in providing car insurance.

    Effect of credit score on car insurance premiums:

    The insurers believe that your credit history will help them determine the insurance losses they may face on providing you a car insurance policy. More than 80% of the insurers have now started considering credit score while calculating car insurance premium. So it is now understood that every car insurance provider will assess your credit score to determine if he/she will be able to make the annual premium payments on time.

    Factors considered while taking credit score to determine car insurance premium:

    • Payment history
    • Types of credits like credit cards, loans, etc.
    • Length of credit history
    • Repayment capacity
    • Payment consistency
    • Number of bank accounts and its maintenance

    If you have a credit score below the desired level, then;

    • It could indicate you have a damaged or problematic credit history. It usually ranges from 650 to 690. It generally indicates the late payments done more than once, skipped payments, etc.
    • If your credit score is below 650, then it indicates that you have multiple loan defaults from various banks, stopped payments to loan lenders, etc. This may lead to bankruptcy as well.
    • If you have zero credit or below 350 it means you have not established a credit history as yet. But if you are a working person, then it is important to repair this immediately by contacting your bank to acquire a small amount of loan to establish a credit history. While you do this, make sure you can repay it on time with proper financial arrangements.

    Keep in mind that your credit history is accessible to any bank and the insurance company can make enquiries about it. The insurer borrows your credit report and passes it through an algorithm to know your insurance score. Which will indicate your insurance record like renewal period, on time payments, claims, etc. The score is then considered for the amount of risk that the insurer is willing to take to provide you a car insurance policy.

    Tips to improve your credit score:

    Repairing your credit score can never happen over time, it like learning how to cook! It takes time but you will get there. Never take any suggestions from anybody which will pave you a faster way to repair your credit score, because it will always backfire you. The credit score takes time to reflect and minimum amount of time taken is three months. Here are few things you can do to improve the credit score:

    • Check your credit score now! You can check your credit score for free online on any third-party website with just few information required.
    • Assess your financial commitments against your income and consult a financial consultant immediately or make a note of all your expenses and commitments and set up a reminder as per the due dates for payments.
    • When you are running low on your pocket and the expenses are higher, it is always good to know the difference between wants and necessities. This will help you to avoid swiping those credit cards before you have paid the previous balances.
    • Pay your bills on time because a few days delay could cost a huge impact on your credit score.
    • Maintain good debts. This means, repay your loans on time as agreed with the bank. This will help you clear off your loans as agreed upon at the time of lending. So if you have a good debt history for longer period of time, it will help you better your credit score.
    • Never take any loan to repay a debt with another bank. Rather than moving your debt from one bank to another or taking more debt to clear off one debt, it’s smart to evaluate your expenses and pay off your debts with proper planning every month.
    • Never buy more than one credit card to improve your credit limit or monthly spending. Everything related to your banking transactions are always recorded and this may bring down your credit score.
    • You can always re-establish the credit history by opening new accounts and maintaining them responsibly while paying off the debts on time.
    • If you are paying off a bulk amount to the bank, inform the bank on the same a little earlier. This will not reflect immediately on your report but with time it will help you increase your credit score.

    The improvisation of a credit score happens slowly and over time. Improving your credit score not only helps you in acquiring loans and credit cards, it will also reduce the insurance premium if it is an exceptional score. Having a car insurance is a major commitment as the amount your pay to insure it is huge. So make sure to have a good credit score to enjoy all the benefits attached with the car insurance. Start improving your credit score today.

    Having a car insurance policy is not only mandatory, but it is also necessary given the traffic conditions today. The traffic today makes it difficult to enjoy the drive on road and hence few collisions and accidents sometimes are unavoidable. In moments like these, a car insurance can be your real savior. Car insurances is not only to avoid penalties and fines, it also protects the vehicle and the owner against a number of situations like accidents, third-party damages and injuries, own damage, theft, natural calamities, man-made calamities like protests, riots, etc. It gives a complete protection to the vehicle. Car insurance is basically distinguished into two-types, third-party liability policy and comprehensive policy.

    A third-party liability only policy is a minimum requirement under the law. It protects any damages or injuries caused by your vehicle to the third-party. It does not provide any cover to the owner or the vehicle. A comprehensive policy on the other hand provides complete protection as mentioned above. You can also purchase add-on covers like zero-depreciation cover, engine protection cover, no-claim bonus cover, roadside assistance cover, etc. The premium for comprehensive policy is higher and the add-on covers are available only for comprehensive policy for extra premium amount.