What is a Credit Score?
A credit score, put simply, is a statistic or number that indicates how an individual is likely to pay off his or her debt. If an individual has a higher credit score, financial lenders such as banks or credit card companies are more likely to loan money to him or her. These credit card companies and banks utilize the credit score to verify and gauge whether the person can be lent money and trusted with it. Credit score extends to Auto insurance premiums, and regulates the availability of credit for borrowers.
What is the link between Credit Score and Insurance Premium?
Research studies have shown that credit score and chances of getting involved in an accident are linked with each other. Therefore, in order to evaluate the insurance score for a particular vehicle, the insurance companies provide base premium rates. These care insurance scores take into account and gauges the credit history to predict how much is the individual likely to get involved in an accident or claim insurance for the vehicle.
Insurance companies, supported by the Government, ensure that they offer less favorable terms to individuals with no credit or low credit scores.
How is the Credit Score Calculated?
There are a lot of factors taken into consideration during the calculation of an individual’s Credit Score, such as the number of accounts held by the borrowing individual, the existence of negative records in the person’s account – which include, but are not limited to, pending dues and late payment penalty remarks.
The payment history of an individual is the biggest factor that influences the person’s credit score. If the individual’s payments are made on their due time, their credit score will be higher than a person who does not make the payments on time.
How can a Credit Score decrease or increase your Car Insurance Premium?
It is common knowledge that the credit score of an individual is inversely proportional to the car insurance premium that he or she has to pay. Since financial-lending companies like banks and credit card companies use credit score to gauge the likelihood of a person paying their dues and debts, these companies offer car insurance premiums depending on the credit score.
For instance, if you have a higher credit score and a track record of paying your debts on time, you are more likely to qualify for a lower car insurance premium that covers a wider range of cover. On the other hand, if your credit score is low or poor, you are less likely to qualify for a greater insurance cover and will have to pay a higher auto insurance premium.
Therefore, it is important to pay your dues in time and maintain a high credit score, so that you don’t have to pay for a higher car insurance premium and so that you are eligible for a greater insurance cover by the insurance companies.