Exploring the Connection Between CIBIL Score and Insurance Premiums

A CIBIL or credit score is a three-digit numerical number calculated based on your credit history, and it communicates your creditworthiness to any lender. The score can be anywhere between 300 and 900, and you are a low credit risk the higher that score is. Several factors affect your credit score, such as your credit utilization, payment history, types of credit used, and length of credit history. Your credit score also affects several elements, such as your car insurance.

Car insurance premiums give your vehicle financial protection in any unforeseen event. And your car insurance rate is based on how much your credit score is. So, use the CIBIL score app or avail of credit bureaus’ offered services to check CIBIL score frequently and review the sections below to understand the interlink between your credit score and insurance premiums.

How Does the Credit Score Affect Car Insurance Premiums?

Your credit score reflects the financial risk you may pose to an insurance provider or financial institution. The score determines how much your car insurance rate will be since the digits paint a picture of how well you manage your credit lines. At the same time, the rate is also determined by your driving history, age, and vehicle type. However, your credit score indicates how likely you are to file a claim.

Generally, car insurance providers divide their customers into two categories based on their credit scores and are determined as high-risk or low-risk. You are eligible for low insurance rates and are considered low-risk if you have high credit scores. Any score above 750 is seen as high, whereas below that number, 600 is average. But you are high risk if you have a low credit score below 600. That will give you a high car insurance rate that the IRDA sets. So, even if your credit scores influence your insurance rate, they are fixed directly by the IRDAI, and no insurance provider can alter it at will.

How do you lower your car insurance rate and improve your credit score?

Ensure that you improve your credit score before applying for car insurance. A higher score will ensure a lower rate, and you can follow the points below to ensure that you are not a high risk.

  • Ascertain that all your loan and credit card payments are made on time. Your payment history is a strong factor in determining your CIBIL score, and your report is heavily affected if you miss even a single payment.
  • Pay off your credit card balances as much as possible to ensure a low credit utilization rate. The credit utilization is how much of your total credit limit you use. So, improve your score by keeping the credit utilization below 30%.
  • Check CIBIL score and report for free using the CIBIL score app or sign into the official portal of credit bureaus to ensure no inaccuracies or errors are displayed. Request CIBIL to correct any errors if you find them in your report.
  • Refrain from inquiring or taking several loans at once. Doing so will affect your credit score and show financial institutions that you are desperate for money. It is not a good impression and lowers your CIBIL score drastically.
  • Also, avoid opening multiple accounts simultaneously since it will reduce your credit score. Instead, focus on paying off your bills and EMIs on time while making fewer inquiries after loans and using your credit less to boost the CIBIL score.

Conclusion

Managing your credit score is straightforward if you check CIBIL score and see how it gets affected over time. Ensure you follow the points above to improve your score and get it high enough for a low car insurance rate. A high credit score gives you several benefits that exceed your insurance since it allows you to negotiate every interest rate. So, you have a higher advantage even if you decide to take a loan in the future. Then, you must review the CIBIL score app and ensure it is in good order before applying. A higher credit score is what every lender will see when they investigate your report. Then, you can negotiate further to reduce your interest rate as much as possible.

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