Does Credit Score Impact Insurance Premiums?
Credit score is an important factor considered by the lenders to assess your creditworthiness. A high credit score helps you borrow loans easily when required. However, did you know that your credit score also has an impact on the amount of your insurance premium and coverage? Read on to understand how your credit score plays a significant role in deciding your insurance premium amount, type of coverage, how you can improve your credit score, and other related details.
Impact of Credit Score on Insurance Premium Amount
Credit scores basically represent your creditworthiness. A high credit score shows that you are financially responsible and are likely to pay your insurance premium on time. This reduces risk for insurers, and they may offer you a better insurance premium deal. Read on to understand the impact of credit score on different types of insurance premiums:
- Car Insurance Premium: For car insurance, credit score plays a noticeable role in deciding the premium amount. Applicants with a good credit score, are viewed as disciplined and financially responsible individuals. Insurance companies are more likely to offer lower premiums to such applicants.
- Two-Wheeler Insurance Premium: Similar to car insurance, insurance companies consider your credit behaviour when determining premiums for your two-wheeler insurance. It is important to maintain a good credit score to negotiate better premiums.
- Other insurance products like life insurance, health insurance, home insurance, etc. may not directly be influenced by your credit score, but can help you negotiate an affordable premium amount. A bad credit score may lead to stricter terms and conditions of the policy, and a higher premium amount.
How to Improve Credit Score?
If you have a low credit score, it will not improve overnight. However, small and consistent efforts can help your credit score improve overtime. Some of the tips to improve credit score are as follows:
- Repay your dues on time: This is one of the simplest and easiest ways to improve your credit score. Ensure that you are clearing your credit card bills on time. If you have borrowed a loan, pay your EMIs before the due date. If you struggle with remembering due dates, you can set up an auto-pay instruction with your bank account or set reminders. Paying your dues on time will surely have a positive effect on your credit score.
- Keep a check on your ‘Credit Utilisation Ratio’: ‘Credit Utilisation Ratio’ basically represents the amount of credit you have used from the total available credit. A high credit utilisation ratio projects you as credit hungry and has a negative impact on your credit score.
- Avoid multiple credit card applications: Every time you apply for a credit card or loan, it will generate a hard inquiry, which will stay on your credit report for a long time. Multiple hard inquiries have a negative effect on your credit score.
- Maintain a good credit mix: Try to maintain both secured and unsecured forms of credit in your portfolio. This shows that you can manage credit efefctively and has a positive impact on your credit score.
- Avoid closing old credit cards: The length of your credit history also has an impact on your credit score. If you have an old credit card, where you have repaid your dues on time, avoid closing it.
FAQs on Impact of credit score on insurance premium amount
- How frequently should I check my credit report?
You should check your credit report at least once a year to ensure there are no errors or discrepancies.
- Will I be charged for checking my credit report?
Most of the credit bureaus offer at least one credit report free of cost annually. You can check with the concerned credit bureau for more details.
- Can I purchase an insurance policy if I don’t have a credit score?
Yes, you can purchase an insurance policy even if you don’t have a credit score. However, the terms and conditions of the policy may be slightly stricter for you.
- Do all insurance providers need you to have a credit score?
No, not all insurance providers require credit scores.
- Will my credit score be reduced if I check my credit report multiple times?
No, your credit score is not affected by the number of times you check your credit report.
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