You would have come across scenarios where a financial institution (e.g. bank) offers you some products based on your past financial performance. Though you may choose to ignore the offer from the institution, the good part is they found your credit score worthy enough to cross-sell that particular product. Credit Score also plays a major role when it comes to buying car insurance.
In this blog, we look at how a good credit score can improve your chances of securing car insurance or bike insurance. We kick start the blog with the fundamentals of credit score.
What exactly is a credit score?
A Credit Score is an indicator (or a statistic) that shows how the individual has fared as far as paying off debt is concerned. The higher the credit score, the better are the chances of financial lenders offering loans or other products to him/her. For instance, whenever you delay in paying your credit card bills (or repaying loan installment, etc.), the delay has a negative impact on your credit score.
Financial lenders, including general insurance companies, can gauge your capability to repay debt based on your past performance. If you consistently maintain a good credit score, financial institutions also try to cross-sell products that might suit your needs.
Credit score also extends to car insurance (or motor insurance) premiums and timely payment of premium contributes to your credit score. A credit score (also called CIBIL score) ranges between 300 and 900. A credit score above 750 is considered to be a good score.
The tight link between Credit Score and Car Insurance policy
Research papers indicate that the risk of the driver getting involved in some accidents and credit score are linked with each other. Hence, vehicle insurance companies provide base premium rates for evaluating the insurance score of a certain vehicle.
The credit history of the vehicle owner (i.e. person who will pay the insurance premium) is taken into account to predict the likeliness of him/her getting involved in some accident. This impacts the claim insurance for the vehicle.
Even when you are buying bike insurance online, your credit score is fetched from an authorized website (like CIBIL). The insurance coverage for your vehicle is suggested based on your credit history. A credit score also plays a role when renewing existing car insurance or bike insurance policy.
We would not divulge into the internals of the calculation of credit score. The bottom line is that the credit score is heavily dependent on the number of accounts held by the individual and his/her performance when it comes to paying EMIs (Equated Monthly Installments), etc.
How credit score influences your car insurance premium
The higher the credit score, the lower is the premium offered on the car insurance policy. A person with a low (or no) credit score is likely to be offered higher premiums than individuals with good credit scores. This applies whether you are opting for a third-party insurance or package insurance policy.
Most of the vehicle owners opt for suitable add-ons that can add value to the policy. A vehicle owner with a good credit score has more options for choosing add-ons to the car insurance policy. Many people believe that factors like salary, age, etc. are also considered when calculating the credit score. This is incorrect since the credit score is a number that indicates how punctual you have been as far as repaying debts is concerned.
Along with buying or renewing car insurance online (or bike insurance online), it is recommended to keep a timely check on your credit score online so that you can take timely actions to improve the same.
The rule of thumb – Pay your debts on time so that your vehicle is more eligible for a higher insurance cover by the insurance company!