Car insurance is a deeply personal thing that is influenced by habits, preferences and individualistic features like their driving record, place of residence and even their credit score.
Head of MiWay Blink, Keletso Mpisane said that many drivers are unaware of the link between their credit score and their car insurance.
Your credit score is one of many important input points that is used to calculate your insurance premium.
What is credit score?
Credit score is an assessment of a person’s creditworthiness. A credit score helps lenders determine whether people will default on credit obligations or how worthy they are to receive new credit.
A bad credit score does not mean that people will automatically be disqualified from being insurance cover, however, the insurer does have a right to say yes or no to you based on your credit score.
Your credit score reflects your ability to make payments on time. If you do have a low credit score, you might pay more for your insurance because of the higher risk of insuring you.
“Insurers reserve the right to either insure your car or not based on your risk profile, and should the risk to insure your car be too high, the feasibility to insure it is then looked into and this is what determines the insurer’s appetite to give you cover,” Mpisane said.
Having a good credit score means that you have a proven track record of being financially responsible which insurance providers prefer to insure since they are generally better insurance risks.
People who are responsible with their money are likely more responsible in other areas of their life including looking after the assets that they insure.
John Manyike, head of Financial Education at Old Mutual shares four ways you can maintain a good credit score:
1. Don’t apply for credit too often.
If you are applying for credit or loans frequently, it is an indication that you have financial challenges and the more often you apply for credit over 12 months, the more your name is listed.
2. Manage your credit card.
According to Manyike, if the balance on your credit card is kept well below your borrowing limit (preferably 35%), your score will benefit.
3. Avoiding high balances on credit accounts.
Having a high balance on revolving credit accounts can lead to a high credit use rate that can hurt your score. Keep a low balance in relation to the available credit ratings to maintain that good credit score.
4. Pay up on overdue accounts.
While a late payment can remain on a person’s credit report for years, getting all the accounts paid up to date can help benefit a person’s credit score.
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