If you are not able to figure out why your car insurance premiums are high then here is something you need to focus on. Car insurance companies often consider your credit score while determining car insurance premiums. So, if you wish to lower your car insurance premium then improving your credit score is the key. Let’s try to analyse how your credit score impacts your car insurance premiums:
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A credit score is the ability of an individual to pay back the amount borrowed as loans or debts. It is a summary of an individual’s repayment history and represents how responsibly he/she can manage debt. The credit report contains the repayment summary, credit utilization ratio, list of existing loans, default loans and the credit score.
The banks usually verify the credit score of an individual before extending loans to borrowers. The credit score also plays an important role in determining the premium rates of your car insurance.
Your credit score is a rating that ranges from 300 to 900 points. Credit rating agencies devise this rating based on your repayment history. The credit score summarizes the risk you pose as a borrower. Your credit score will plummet in case you have tax liens, unpaid credit card bills or loans.
Therefore, the car insurance companies consider credit score as an important factor in determining your insurance premium rates. This is known as a credit-based insurance score. Just like your credit score, this score is based on your history of timely payments of loans. However, the insurers do not consider your personal information like your job details or income.
The insurance companies have different methods of interpreting credit scores. Insurance companies believe that people with better credit score have lesser chances of filing a claim. This is the reason a low credit score results in higher insurance premium and a high credit score results in a lower insurance premium.
See Also: How to Check Your Credit Score Online?
Insurance companies check the credit score to understand the repayment trends followed by the customer. A good credit score instils a guarantee that the customer manages his personal finances responsibly and can manage and pay off his debt.
This way the insurance companies can assess the likelihood of an insurance claim. The credit history of a person shows whether or not he will be able to pay insurance premiums from time to time. Also, a credit score is an important factor as the insurance company will have to bear more liability for the claim made by a person with a bad credit score.
Statistics reveal that from several years car insurance companies are using a credit score to determine your insurance premium rates. Most of the insurers believe that a person with a better credit score is less likely to file an insurance claim. Insurers use this relation to hike the premium rates of insured with a bad credit score. This is because a person with a higher credit score will be more reliable and will pay his premiums on time. Also, the insurance company will have to bear lesser liability for such insurance claims.
See Also: Free Credit Score
See Also: What Is A Perfect Credit Score?
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