Does Low Credit Score Affect Your Car Insurance Premiums?

Cars not only offer comfort in daily travel but also a feeling of mental peace. With your own car, you don't have to worry about getting a cab or struggling through crowded public transport. But the ownership of a car also comes with great responsibility. You have to be prepared for the worst-case scenarios, such as accidents and theft. And that’s where car insurance comes into play.

Car insurance offers essential financial protection in difficult situations like accidents or theft. When choosing a plan, one key factor is the premium—the amount paid to the insurer to maintain coverage.

Several factors, such as the age of the vehicle and driving history, influence the premium. However, does a credit score affect car insurance costs?

A credit score is a number between 300 and 900 which reflects your creditworthiness. In other words, it shows how safe it is for a lender to offer a loan. The higher the credit score, the more reliably a borrower will pay back his or her debt to a lender.

In India, insurance companies don’t use a person’s credit score to calculate the car insurance premium. Therefore, there is no direct relationship between a car insurance premium and credit score.

However, a credit score can improve your financial health and fetch you lower interest rates on loans. Thus, you can save on your loan repayment with a higher credit score, and this can allow you to pay a higher premium, buy add-ons, and get better coverage under your car insurance. A good credit score can indirectly have a positive impact on your car insurance premium, and vice versa.

Here are some of the factors that affect car insurance premiums:

Type of Vehicle: The costlier your vehicle, the higher the premium you have to pay to insure it.

Age: Car insurance premiums usually decline as a vehicle gets older. This is because a newer vehicle has a higher replacement cost than an older one.

Driving History: If your driving history shows that you are a good driver, then you will need to pay a lower premium.

Extent of Coverage: The extent of coverage you get from the car insurance plan directly impacts the premium. The greater the coverage, the higher the premium you will pay.

You can follow these tips to improve your credit score:

Clear Bills Timely: You must pay all your loans, EMIs, and credit card dues on time to maintain a healthy credit score.

Check Credit Report: It is important to check your credit reports regularly and watch out for any errors. You raise a dispute in case of any errors.

Keep Credit Utilisation Ratio Low: The credit utilisation ratio shows how much of the available credit you are currently using. It is best to keep it under 30% as it reflects high financial responsibility.