Vehicle insurance is the first thing we consider investing in when purchasing a new car. Does having a bad credit score bother you? Will it impact your car insurance cover? Or is it a myth?
A bad credit score is known to affect all areas of your finances. It is also found that drivers with a low credit score can be expected to pay significantly more for their insurance.
In Nova Scotia, you can be assured of the best rates for your car insurance should you choose to go with Surex.
Let us understand what all goes into determining your cost for a car insurance cover:
If you live in an area that experiences car insurance claims more frequently, the insurance rate for your vehicle will be higher than one where the rate of claims is on the lower side.
Personal Driving History
While applying for car insurance, you need to disclose your car insurance claims history, as well as your recent driving convictions if any.
Any person below the age of 25 is considered a “young” driver in Canada’s vehicle industry. In such a case, with little or no experience, you will be considered as a ‘high-risk’ driver. This will cause you to pay a higher cost for your insurance. However, as you advance in age and get more experience, a clean driving record and compliance with road laws can help reduce your premium rates.
The value of your premium will depend upon the magnitude of risk you are seeking to cover in your claim. Some examples are:
This is the bare minimum you need to have as per Canada’s laws. It covers the damage to property and physical injuries of the other party. This is invoked when you are at fault.
This covers the cost of repairs to your vehicle, in case of an accident.
Uninsured Motorists Coverage
Uninsured motorist coverage pays for damages caused by the other motorist, who may be uninsured or underinsured.
As the name suggests, it covers most of the damages to your car.
Type of Vehicle
The type of car is sure to influence your premium amount. Certain cars like racing cars, which are more prone to accidents will definitely have a higher cost of insurance. Similarly, luxury cars have expensive parts. Thus, their cost of insurance is also high.
You can improve your credit score by making timely payments to your credit cards. Making a minimum payment can also lower your premium cost to an extent.
It is the amount paid by you before the insurance company pays for any claim. The company will offer you different thresholds of deductibles to choose from. The higher your deductible, the lower will be your premium.
Why Does Your Credit Score Impact Insurance Rates?
Insurance companies use credit scores to judge the level of financial responsibility a person has. According to a study done by the Federal Trade Commission (FTC) in 2007, there is a direct correlation between a driver’s credit score and the frequency and cost of claims. This causes insurance companies to rate people with lower credit scores as high-risk drivers.
According to the FTC, the lower a driver’s credit score, the more likely they are to file a claim. Rash driving or traffic violations in the past increase a person’s probability of repeating the same mistakes, thus resulting in frequent claims in the future.
These high-risk drivers prove to be a liability for insurance companies. Since insurance is a pool of money contributed by multiple policyholders for a rainy day, it would not be prudent to use a bigger part of that sum just on one person because of their repeated mistakes.
For determining the cost of insurance, a higher credit score would mean you are more likely to be able to pay bills, and thus less likely to miss payments or commit any fraud.
Insurance companies also know that credit scores and income tend to be directly correlated, which means that a higher credit score makes you more likely to pay for minor damages out of your own pocket rather than file a claim.
Tips to Increase Your Credit Score
By maintaining a good credit score, you open the possibilities of savings in all types of insurance. Here are some tips which can help improve your credit score:
- Set up auto-pay for bills, or give Standing Instructions to your bank. This will help if your score is low owing to consistent late payments.
- Work with credit agencies directly and ask them to add regular rent and utility payments to your credit score. Call the agencies directly and ask them how these payments can add to your score.
- If you need to raise your credit score, it is important not to open any new accounts for a while.
- Pay bills on time, especially credit card bills and loan repayment.
- Avoid debt collection to the point that a collection agency is involved.
- Every year you have the right to get a free copy of your credit report. Go over them to make sure everything is correct. If a creditor is erroneously reporting you as default, or you have been the victim of identity theft, you can clean up your credit report and see an increase in your credit score.
- It could take time for you to improve your credit score. But, it is worth every effort. A high credit score can translate into lower car insurance premiums, as well as lower rates for interest on loans.
- Although your credit score is not the only factor determining your car insurance cost, try to understand how credit scores have a bearing on auto insurance rates. Before purchasing car insurance, or asking for a quote for the same, keep in mind that different car insurance companies will treat your credit score differently.
- If you have a strong credit record and credit score, look for a company that will discount your car insurance rates accordingly. However, if your credit score is on the lower side, compare multiple insurance quotes from different car insurance companies, and choose one that places less importance on credit scores.
Having learned how your credit score has a say on the premium you pay for your car insurance, getting car insurance (and a good one) becomes paramount.