A credit score is a number indicating a person’s likelihood of paying his or her debts. Lenders in the financial industry such as the banks and the credit card companies use the credit score to verify the risk in lending money to the borrower. Use of credit score facilitates the availability of credit for borrowers. Credit score is not limited to borrowing but extends to auto insurance premiums.
Credit Score and Insurance Premium
Insurance Company usually provides the base premium rates for evaluating the insurance score for the vehicle. Car insurance score takes account of the credit history to predict the likelihood of involving in an accident or claiming the insurance for the vehicle. Research indicates that how the credit score and the chances of involving in an accident are inter-linked. Subsequently, the government ensures the car insurance companies offer fewer favorable terms for no credit or poor credit scores. The companies inform the consumers of their credit scores and maintain a record for future transactions.
Understanding Credit Score Calculation
The credit score calculation takes into account factors such as the number of accounts held by the borrower and the negative records in the account, including late payment penalty, or pending dues.
Here is a closer look at the credit-based insurance score.
Percentage of Credit Score Depends On Explanation
10% New Credit It includes the information on the new account you have opened and the proportions of the new borrowing account with the previous ones. It takes into account the number of inquiries you have made and any problems in repaying the loan.
10% verifying the type of accounts you have and the current mortgage Factors such as revolving credits and loans paid in installments are taken into consideration. There is a good chance of achieving a favorable credit score, if you have different accounts.
15% Time of your credit history Lenders track the activities since you first borrowed the loan until the recent status. A longer credit history favors your credit score.
30% Current amount of debt the amount of money you will have to repay to the lenders including the current balance. It also verifies the current method of repayment and the consistency of the payments to the loan accounts. Having zero balance accounts will play a role in deciding your credit score.
35% Payment history it checks how many accounts you are currently paying the loans and any negative records of the repayment. It also checks if any item went unpaid beyond the due date. The length of time you have delayed is one of the important factors.
Your payment history is the largest part of your credit score. Payment history alone can make a bigger difference in the credit score. If your payments are in time, you will have a higher credit score.
How Credit Score Can Lower Your Car Insurance Premium?
The credit score is inversely proportional to the premium amount. If you have a higher credit score, then your insurance score will be higher. Therefore, there is a greater chance of qualifying for a lower car insurance premium that offers wider range of cover.
However, if your credit score is low, you will have to pay a higher auto insurance premium, and may not be legible for greater insurance cover. In many cases, drivers have paid more than 80% for the same cover than the drivers with good credit scores.
Thus, keep your credit score higher and save money on car insurance premium.