How your credit score can affect your car insurance premiums

This will depend on your credit history and the type of car insurance you have applied for.

How your credit score can affect your car insurance premiums

If you have ever applied for a credit card or a loan on a car you will know how important a credit score is to giving you better rates. While not many may know this, it can also affect your car insurance premiums much in the same way. This is because many car insurance companies use credit-based insurance scores to help determine the risk when providing you with insurance quotes. With that said, here is what you need to know about how your credit score can affect your car insurance policy.

How credit-based insurance works

Car insurance companies will utilize your credit score or your ability to pay back a debt to help them determine the likelihood that you will make an insurance claim. They also couple this with your driving history, claims history, and other factors to help them establish eligibility for payment plans and insurance rates for you. It’s important to note that in other cases they will use a different system entirely to give you your insurance rates and it will differ from provider to provider in the Philippines. 

If you have a high credit-based insurance score, an excellent driving history, and zero claims on your record, you will be able to qualify for lower rates overall. Remember that this score is only one of many other factors the insurance provider will need to use to calculate your premium. The other factors that they use may also lower your insurance rate or conversely raise it as well.

If you have an excellent insurance score but have a spotty driving history, then you are less likely to qualify for lower rates as the likelihood for you to file a claim has increased. So take note of these things before you apply for a credit-based insurance policy. 

Why do some insurance companies use credit-based insurance scores?

Research in the US has shown that credit-based insurance scores can accurately predict your accident potential. The statistical analysis of the data presented in the study showed that those with a low insurance score are more likely to file a claim compared to those who have a higher score. Those with higher scores tend to get into fewer accidents and the cost of insurance for them is less than their lower-scoring counterparts.

Ways to improve your credit score

If you want to go for a credit-based car insurance plan here are a few things that you can do to help improve your score. Take note that these actions can also help improve your overall credit score and may even help you increase your borrowing potential if you want to take out a loan.

Factors to improve your score

  • Long-established credit history

  • No late payments or past-due accounts

  • Your open accounts are in good standing

Factors that can lower your score

  • Past-due payments 

  • Accounts in collection

  • A high amount of debt

  • A short credit history

  • A high number of credit inquiries

With that said, it is a long process to get your credit score to a good standing you will need to be on time or early with your payments each time. If you think that this is too hard to do or if you don’t think you qualify for it, then we highly recommend looking for a different kind of car insurance policy that will better suit your needs.