What Is the Credit Score and How Does It Impact Car Insurance?

Posted on: Jul 20, 2023 | | Written by:

What Is the Credit Score and How Does It Impact Car Insurance?

Published on July 20, 2023. EST READ TIME: 3 minutes

The credit score you have is an important marker in your financial journey. You may think it won't affect some of your financial purchases, such as your comprehensive car insurance plan, but it does. Take a look at this article to know more about the relationship between credit score and car insurance and how it may affect you.

What is a Credit Score?

The credit score is nothing but a record that shows how responsible you are financially. If you have a high credit score, it means you are disciplined with your money, you pay your bills on time, you repay all your loans and you don't spend more than you earn. A low credit score, on the other hand, tells that you are financially irresponsible. You have outstanding dues, you may have defaulted on loans and you have too many financial liabilities that you aren’t capable of addressing.

A person with a high credit score is given due respect in his financial journey in recognition of the discipline and good attitude towards money that he shows. If you have a high credit score, you will receive loans at a faster and more economical rate. Also, you will be given any financial product you need such as an insurance policy.

On the other hand, if your credit score is low, you will face many challenges. Your loan requests may be rejected. You will have to pay more interest rates on certain loans such as personal loans. You may not get any new credit cards. If your credit score is too low, you may face difficulties while buying car insurance online at an affordable rate.

How Does Credit Score Affect Car Insurance?

Does credit score affect car insurance? Yes, it does. When you look to buy car insurance online, the insurance provider scrutinises your credit score. If your score is found to be on the lower side, you may have to pay a higher car insurance premium. This is because the insurer is taking a risk by offering the policy to you and they will cover the risk by charging a higher premium.

If you want an economical car insurance premium, work to improve your credit score. This will help you to save a lot of money in the long run and have the best motor insurance coverage as well.

How to Check Credit Score?

You can check your credit score quite easily online. The process hardly takes a few minutes and is free of charge. You can get to see your credit score on any website that offers this service. All you need to do is feed in your personal details like your name, phone number, etc. Once that is done, your credit score will be displayed on the screen within a few minutes.

What is a Good Credit Score?

300 and 900 is the range for credit scores. A person who has a score of 800 and above is known to have an ‘excellent’ credit score.

Anyone who has a score between 740 to 799 is said to have a ‘very good’ credit score.

If your credit score ranges between 670 and 739, it is said to be a ‘good’ score, whereas a score between 580 and 669 is considered ‘fair’.

Credit scores ranging between 300 and 579 have ‘poor’ scores.

As you can see, the higher your credit score, the higher category of excellence you stand to get. Therefore, try to improve your credit score as much as possible and you will gain immensely.

Tips to improve your credit score

Now that you know that your credit score can affect your car insurance premium , among other things, make every effort to improve the score. Here are some tips to help you along the way:

1. Pay your EMI on time

One of the biggest reasons for a fall in a credit score is a loan EMI default. No matter what type of loan you have, make sure you pay the EMIs on time. If the EMIs are too large and burdensome, speak to your lender and rework the EMI structure, but don't miss a payment at any cost.

2. Spend less on your credit card

Credit card spending can spiral out of control and then you may struggle to pay the bills. Unpaid credit card bills also contribute towards a low credit score, so make sure you have control over your spending.

3. Manage your loans

Do not get into the habit of taking too many loans. You will have to pay multiple EMIs which in itself may be a burden. Then, you may genuinely forget about one payment while taking care of the others. So, keep your expenses under control and do not take a loan until you absolutely need it.

4. Clear all due bills and payments

And finally, try to clear all the pending dues and payments. Whether it is a lapsed insurance policy or an unpaid bill, clear it on priority and you will see an improvement in your credit score.

As you can see, becoming financially disciplined can go a long way in improving your credit score, so start the correct practices right away.

Conclusion

Now that you know the importance of your credit score, look to improve it before you look to get car insurance online. Follow the tips mentioned above and it will become easy for you to improve your credit history. Not only will this help you to get a better premium on the motor insurance plan, but it will also make your financial journey a lot smoother.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to policy wordings and prospectus before concluding the sales.

Why and how car insurance companies conduct background checks

High credit score equals low insurance premium – Find out why

How to identify a car's owner from the registration number?

How to Get A PUC Certificate for Your Vehicle?

KYC Process in Car Insurance: Everything You Need to Know