You will often find such people in your office or society, the premium of insurance for someone’s car is less, then it will be more. You must be thinking, what is the reason that someone’s low, then one’s premium is high? This is due to your credit score. Because usually car insurance companies take into consideration your credit score when determining the premium of insurance. So if you want your car insurance premium below, then you have to improve your credit score. Credit score matters a lot in many cases, so through this post we are going to tell you what effect your credit score has on your car insurance premium.
What is credit based insurance score?
A credit score is the ability of a person to pay back the amount borrowed in the form of a loan or loan. It is a summary of a person’s repayment history, which shows how responsibly a person can manage a loan. A person’s credit report contains the summary of repayment, credit utilization ratio, list of current loans, default loan and credit score. Banks usually verify a person’s credit score before lending. Credit score also plays an important role in determining the premium rates of your car insurance.
How does credit score affect insurance premiums??
A credit score is a rating that ranges from 300 to 900 points. Credit rating agencies create this rating based on your repayment history. If you have not paid taxes, you have not paid your credit card bill or you have a debt, your credit score is reduced. Hence car insurance companies consider credit score to be an important factor in determining the rates of insurance premiums. This is known as credit based insurance score. Like your credit score, this score is also based on the history of payments made at the time of the loans taken by you. However, insurers do not consider your personal information such as your job description or income. Insurance companies have different ways of analyzing credit scores. Insurance companies believe that people with better credit scores are less likely to file a claim. For this reason, those with low credit scores have higher insurance premiums and those with higher credit scores have lower insurance premiums.
Why insurance companies check credit scores?
Insurance companies check the credit score to understand the repayment trends made by the customer. A good credit score of a customer guarantees that he manages his personal finances responsibly and can manage and pay off his debts on time. A person’s credit history tells whether he will be able to pay his insurance premium on time. Along with this, insurance companies also assess the possibility of an insurance claim, as the insurance company will have to bear more liability on claims made by a person with a poor credit score.
How does a credit score help car insurance companies calculate insurance rates??
Statistics show that car insurance companies have been using credit scores to determine your insurance premium rates for many years. Most insurers believe that a person with a better credit score is less likely to file an insurance claim. Insurers based on their recognition and assessment have a higher premium rate for a person with a poor credit score. With this, insurance companies believe that a person with a higher credited score is more reliable and pays their premium on time. In addition, the insurance company has to bear less liability on claims of a person with a higher credit score.
How to improve credit score?
Repay your debts on time – Be sure to pay the EMI of your credit card loan, bank loan or any other loan on or before the due date. Payments made after a due date can severely affect your credit score, as your credit history plays an important role in determining your credit score.
Check your credit score regularly – Keep track of your credit score. Various online aggregators provide the facility to check credit scores for free. Regularly checking your credit score will enable you to make better financial decisions. Also, you can find out and correct any discrepancies in your credit report.
Do not apply for multiple loans at once – Applying for more than one loan at once can negatively impact your credit score.