Does Credit Score Affect Your Car Insurance Rate?

By Trev Gami •  Updated: 01/07/24 •  4 min read

When you obtain your car insurance, the insurer considers different aspects to calculate your premium including your credit score. With a high credit score, you can enjoy affordable auto insurance. This article explains all the important aspects of credit scores and how they affect your car insurance rate. 

- ADVERTISEMENT -

Does Credit Score Affect Your Car Insurance Rate

Yes. Many insurers believe there is a correlation between low credit scores and bad financial behavior. The insurance company is concerned about your credit history to see if you can manage to pay your premiums over a long period. A poor credit score is commonly caused by issues like late or missed payments. In some cases, a low score can be associated with financial indiscipline. Therefore, poor credit is likely to increase your coverage rate by more than 80% since the insurer would develop little trust in your credit score.

Different studies suggest that credit-based scores can be used to predict the behavior of a driver when it comes to filing insurance claims. Some of the studies found that drivers with bad credit pose a high risk to insurers since they are likely to file costly claims. Likewise, if you pose more risk to the insurer, you will be charged higher insurance rates. 

What Is a Good Credit Score for Insurance?

In South Africa, a good credit score for insurance ranges from 670 to 739. However, insurance companies can use different scoring models, but you need an average credit of 600 to be safe when you apply for a policy. With a higher credit score, you have more chances of getting more competitive insurance for your vehicle. 

How Your Credit Score Can Help You Save on Car Insurance

A poor credit score often leads to high insurance premiums for your car because of the risk you pose to the insurer. However, if you have a high credit score, you can receive lower insurance rates, and this will help you save a lot of money. Money saved from insurance premiums can be used for other purposes to improve your welfare. 

Before applying for auto insurance, it is vital to check your credit record. If your score is poor, it would be a good idea to conduct research first to enlist the services of an insurance company that offers competitive premiums based on your credit score. You also need to improve your credit score so the insurer can lower your insurance rates over time.  

- ADVERTISEMENT -

How Is Credit Score Used in Insurance?

Credit-based insurance scores are commonly used by insurance companies to assess the risk posed by different drivers. A credit score helps the insurer to evaluate your credit history to see if you can sustain your monthly payments of premiums. If you have experienced late or missed payments on any of your credit accounts, your credit score would also be negatively affected.

Insurance companies consider the same factors just as lenders to assess your level of risk. They will make hard inquiries on your credit to check your report for elements like late payments or missed payments. When the insurer discovers that you have previously tried to open several credit accounts within a short space, they would conclude that you are not in control of your finances. As a result, your application for auto insurance can be declined, or you will be charged high premiums.

Insurance companies are also interested in checking your payment to determine if you will be capable of maintaining payment of your premiums. Missed payments on your credit report will impact negatively on your credit score. As a result, your application for auto insurance may be rejected due to poor record. If you are lucky to be approved, there will be a likelihood of getting high premiums.

On top of reviewing your credit score, your insurer may also check the types of credit accounts you have and the duration you have held those accounts. If you maintain your credit account for a longer period, it will appear more favorable to insurers. Having several credit accounts with a good payment history gives you an added advantage when you apply for car insurance. People who can manage their finances well receive favorable treatment from insurance companies. 

If you want to purchase insurance for your car, you need to remember that your credit score will affect your policy rates. When you have a poor credit score, you are likely to get high premiums. In contrast, a high credit score leads to favorable premiums. Since insurance companies check your credit score to determine your premiums on auto insurance, it is vital to check your credit report regularly. Dispute all errors that can negatively impact your credit score. Additionally, ensure you pay all your bills on time to improve your credit score.

- ADVERTISEMENT -

Keep Reading

How Much Does Pulling Your Credit Affect Your Score?

How Much Does Pulling Your Credit Affect Your Score?

Today we unpack this common question and everything you should know about pulling credit reports. 

What Is A Credit Bureau Score?

What Is A Credit Bureau Score?

This blog will further help you understand the calculation of the credit bureau score and many more. 

Why is my Credit Score Not the Same as Other Credit Bureaus?

Why is my Credit Score Not the Same as Other Credit Bureaus?

Today we will dive a little deeper into why credit scores can vary between credit bureaus, and why you don’t need to worry too much about that variation

How to Keep a Good Credit Score Without Debt

How to Keep a Good Credit Score Without Debt

What Are 5 Things You Can Do to Avoid Credit Card Debt?. Read on to learn how to keep a good credit score without debt.    

What Does It Mean When You Don’t Have No Credit Score?

What Does It Mean When You Don’t Have No Credit Score?

How to Check Your Credit At Ackermans

How to Check Your Credit At Ackermans

If you shop at Ackermans, we are about to share some details with you on how to check your credit.

What Is A Good Credit Score to Buy A House In South Africa?

What Is A Good Credit Score to Buy A House In South Africa?

As we advocate good credit scores, we will take you through the required credit score to acquire a house. 

How Do I get a loan Without A Credit Score?

How Do I get a loan Without A Credit Score?

In this blog post, we will take you through how a loan can be obtained without a credit score. We will delve into more topics on the absence of credit scores and its effect on securing a loan. 

How to Temporarily Unfreeze Your TransUnion Credit Report?

How to Temporarily Unfreeze Your TransUnion Credit Report?

Today we will look at how to deal with this circumstance, using TransUnion as an example. 

Can You Open A Checking Account With A Bad Credit?

Can You Open A Checking Account With A Bad Credit?

This article tries to delve into the possibilities in an attempt to give answers to an individual needing to open a checking account with less-than-perfect credit scores.

Why Is My Credit Score Different on Different Sites?

Why Is My Credit Score Different on Different Sites?

Why Is My Credit Score Different on Different Sites? Today we look at why, and what you need to know about this phenomenon.

What is Required to Check Your Credit Score?

What is Required to Check Your Credit Score?

Today, we will look closer both at the borrower’s side of checking a credit score, and at the lenders

How Long Does A Credit Check Affect Your Score

How Long Does A Credit Check Affect Your Score

These and many more questions are asked about credit checks. Let us delve into more credit checks to gain some insight. 

How to Write Off Debt Without Affecting Credit Score

How to Write Off Debt Without Affecting Credit Score

This and many other questions are we going to look at; in the end, you should have a fair knowledge of the process of debt write-off and its timeframe. 

What Credit Score Is Needed For Amazon Credit Card

What Credit Score Is Needed For Amazon Credit Card

This blog post will provide you with some important information regarding the credit score needed for an Amazon credit card.