A credit score is a three-digit number that indicates your financial health and creditworthiness. It is highly relevant while applying for credit cards and loans. Lenders consider your credit history to determine the loan's interest rate and sanction the credit amount. If you have a poor credit score, your lender may levy higher interest rates, or reject your loan application altogether. Car insurance companies also check your credit score using similar logic. They assess it as a precautionary measure to protect their interests. Read on to understand why a credit score is important in obtaining car insurance.

Why is it important to have a good credit score while buying car insurance?

Here's why having a good credit score is important while purchasing car insurance.  

1. Better insurance rates:

While insurers compensate you for losses arising from a claim, they expect prompt premium payments in return. If you can provide such assurance with a high credit score, you get better offers on car insurance rates. While checking your profile, insurers will use your credit rating as one of the parameters to determine the premium costs.

2. Higher credit-based insurance score:

When insurers look into your credit history while offering insurance products, they consider your credit-based insurance score. The value is derived by evaluating factors like your payment history, types of credits taken in the past, length of credit payments, repayment capacity and consistency of repaying money borrowed on credit, among other things. Insurers typically verify your credit report to obtain this information.

3. Depicts you as financially responsible:

Being financially responsible is important when buying any product on credit. The same goes for car insurance. This is why the CIBIL score is important. A good credit score shows that you have a stable economic standing; that you can manage to pay your insurance premiums without hiccups, especially if you choose the EMI route of paying insurance premiums.

4. Helpful in paying deductibles:

A deductible in car insurance is an amount you must pay from your pocket during the claim settlement process. While it may be voluntary or compulsory based on your insurance plan, it is usually a lump sum amount; a specific percentage of the claim amount. A high deductible leads to reduced insurance premiums. Also, a good credit score shows your capacity to pay a high deductible.

5. Ability to manage excluded expenses:

Your insurance provider covers your claim expenses up to the sum insured limit. You may not be eligible for all-encompassing coverage. E.g., if you don't opt for an engine protection rider, you would have to pay for the same if your vehicle's engine gets damaged. This could be a significant expense, which is why insurers assess your expense management and credit borrowing capacity by evaluating your credit score.

Buy car insurance online

Knowing why a good credit score is important for car insurance enables you to prepare better before buying the policy. You can check your credit rating online and fix any discrepancies proactively. Additionally, consider upgrading your vehicle with protective tools and remember to maintain a clean driving record. Such steps help in getting a lower car insurance premium.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.