Know How Your Credit Score Can Influence Your Insurance Premium

Have you ever wondered how your credit score affects your insurance premiums? Your credit score, also known as your CIBIL score, plays a significant role in determining the amount you pay for insurance coverage, particularly car insurance. 

Insurers do a credit report check and use your credit score as a risk assessment tool to evaluate your financial stability and reliability as a policyholder.

In this article, we will explore how your credit score impacts insurance premiums and provide practical tips on improving it. We will also learn where to get a free credit report.

Relation between credit scores and insurance premiums

A higher credit score implies that you are more likely to make timely payments, reducing the risk for insurers. As a result, individuals with good credit scores often enjoy lower insurance premiums than those with lower scores.

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Credit scores influence car insurance premiums due to the correlation between responsible financial behaviour and safe driving habits. Following a credit report check, insurers regard individuals with higher credit scores as reliable policyholders, often offering them lower premiums. Conversely, those with lower scores may face higher premiums as they are perceived as higher risk. Thus, maintaining a good credit score can lead to more affordable car insurance rates.

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While the influence of credit scores on insurance premiums is more prominent in car insurance, it may also play a role in other types of insurance, although to a lesser extent. Insurers consider multiple factors when determining premiums for home, health, or life insurance policies. However, individuals with good credit scores generally have an advantage when it comes to obtaining competitive premium rates across different types of insurance. 

It is highly recommended to regularly take out a free credit report to keep a tab on your score.

Additional read: How to use credit card wisely

Example of impact credit scores on insurance premiums

Let's consider an example to illustrate how your credit score can affect your car insurance premiums. 

Assume two individuals, John and Sarah, with identical driving records but different credit scores—John has an excellent score of 800, while Sarah has a fair score of 650.

Both John and Sarah request quotes from the same insurance company for identical car insurance coverage, and the company's premium calculation takes into account their driving records as well as their credit history checks.

John receives a premium quote of ₹10,000 due to his excellent credit score, whereas Sarah receives a quote of ₹15,000 because of her lower score. This example highlights the significant impact that even a slightly lower credit score can have on insurance premiums.

How to improve credit scores to lower insurance premiums?

Here are a few things that can help boost your credit score and get you a lower insurance premium:

• Pay bills on time: By consistently paying your bills on or before the due dates, you demonstrate financial responsibility and reduce the risk perception associated with your credit score.
• Reduce debt: High levels of debt can negatively impact your credit score. Focus on paying off existing debts and avoid taking on unnecessary new debt.
• Maintain a good credit history: Building a positive credit history is crucial for improving your credit score. Regularly using credit cards and making timely payments can show lenders that you are a low-risk customer.
• Remember to get a regular credit report check done to identify any discrepancies. You can get a free credit report from major credit bureaus in India, such as CIBIL, Equifax, Experian, and CRIF High Mark. 

Conclusion

Maintaining a good credit score can benefit you in various aspects of your financial life, including lowering your insurance premiums.

While improving your credit score takes time and effort, the rewards are worth it. Remember to regularly check your credit report and take proactive steps to address any inaccuracies or areas that need improvement. Mahindra Finance offers valuable resources and tools that can help you monitor and improve your credit score over time.

FAQs

Q: How often should I do a credit history check?

A: A credit history check is recommended at least once a year to ensure its accuracy and identify any potential issues that need attention.

Q: Is credit check free online?

A: Yes, several websites offer free credit checks online. However, it is important to do credit checks only from reputable sources to ensure the accuracy and security of your personal information.

Q: Will my credit history impact all types of insurance?

A: While the impact of credit history is more significant in car insurance, it may also play a role in other types of insurance, such as home or health insurance. Access a free credit report before getting any insurance or loan.

Q: What is a good credit score for insurance?

A: The exact definition may vary depending on the insurer and the type of insurance you're seeking. Generally, a credit score above 700 is considered good for insurance purposes.