Credit score, or commonly known as CIBIL score, is typically inversely proportional to insurance premium. In other words, higher the credit score, lower the premium and lower the score, higher the premium.
Key impacts of credit score on insurance premium:
Impact on premiums: A high CIBIL score (indicating good financial history) can lead to lower insurance premiums, especially for car insurance. Insurers view you as a reliable policyholder less likely to miss payments.
Risk assessment tool: CIBIL score helps insurers assess your financial risk. A low score might suggest a higher chance of claims, prompting insurers to charge a higher premium to cover potential losses.
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Not the sole factor: While CIBIL score is important, insurers consider other factors like driving record, car details, and your age to determine the premium.
Not applicable to all insurance types: The impact of CIBIL score is more prominent in car insurance. It might play a role in some other insurance products, but not to the same extent.
Potential for improvement: Individuals with lower credit scores may have the opportunity to improve their scores over time, which could lead to lower insurance premiums in the future.
Paying bills on time, reducing debt, and maintaining a good credit history are some ways to improve credit scores.
Maintaining a good CIBIL score can benefit you with lower car insurance premiums. However, comparing quotes from multiple insurers is always recommended to ensure you get the best deal.
Frequently Asked Questions:
How does responsible usage help improve your credit score?
Using credit card in a responsible fashion can show the issuer that you are a low-risk customer, thus making it more likely to approve a credit limit increase.
When can one expect to see an automatic raise in credit limit?
If you make on-time payments regularly and also manage your credit responsibly, you may get an increase without asking for it.
What is the importance of credit utilisation ratio?
This is the ratio of your credit card balances to your credit limits. It is vital to keep this ratio lower (i.e., below 30 per cent) to maintain a good credit score.
What is the significance of payment history in maintaining good credit score?
Making credit card payments on time is one of the key factors which influence the credit score. So, when a credit card holder can manage a number of payments in a responsible way, it is seen positively on his/her credit history.
What is the key disadvantage of a low credit score?
Among several disadvantages, one of the key disadvantages is that you are likely to be offered higher interest rates even when a loan is approved.
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Published: 27 Mar 2024, 02:14 PM IST