Understanding Credit Score and Car Insurance

A credit score is a number indicating a person’s likelihood of paying his or her debts. Lenders in the financial industry such as the banks and the credit card companies use the credit score to verify the risk in lending money to the borrower. Use of credit score facilitates the availability of credit for borrowers. Credit score is not limited to borrowing but extends to auto insurance premiums.

Credit Score and Insurance Premium

Insurance Company usually provides the base premium rates for evaluating the insurance score for the vehicle. Car insurance score takes account of the credit history to predicts the likelihood of involving in an accident or claiming the insurance for the vehicle. Research indicates that how the credit score and the chances of involving in an accident are inter-linked. Subsequently, the government ensures the car insurance companies offer fewer favorable terms for no credit or poor credit scores. The companies inform the consumers of their credit scores and maintain a record for future transactions.

Understanding Credit Score Calculation

The credit score calculation takes into account factors such as the number of accounts held by the borrower and the negative records in the account, including late payment penalty, or pending dues.

Here is a closer look at the credit-based insurance score.

Your payment history is the largest part of your credit score. Payment history alone can make a bigger difference in the credit score. If your payments are in time, you will have a higher credit score.

How Credit Score Can Lower Your Car Insurance Premium?

The credit score is inversely proportional to the premium amount. If you have a higher credit score, then your insurance score will be higher. Therefore, there is a greater chance of qualifying for a lower car insurance premium that offers wider range of cover.

However, if your credit score is low, you will have to pay a higher auto insurance premium, and may not be legible for greater insurance cover. In many cases, drivers have paid more than 80% for the same cover than the drivers with good credit scores.

Thus, keep your credit score higher and save money on car insurance premium.