All you need to know about credit score and its impact on car insurance cost

In recent years, credit scores have become increasingly significant in financial dealings worldwide. The Philippines is no different, while the use of credit scores to assess car insurance premiums is still a developing practice. We see there is a growing trend among insurance providers to include credit-based insurance scoring in the premium calculations.

But why do insurance providers do so? Well, it is all to estimate the risk levels, as research suggests that individuals with higher credit scores tend to file fewer claims. Insurers believe that the behaviors that lead to a low credit score — such as missed payments or high debt — also increase the likelihood of filing claims.

Furthermore, research suggests that there is a correlation between lower credit scores and increased claim rates, and this rationale is gradually being adopted in the Philippines.

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Understanding how credit score impacts car insurance costs

Additional factors affecting car insurance premiums

While credit scores are a growing factor in determining car insurance costs in the Philippines, other well-established factors also play a significant role including -

Key takeaways -

• Insurers believe that poor financial management — reflected by a low credit score — correlates with a higher likelihood of riskier behaviour on the road.
• A higher credit score signals to insurers that the individual is financially responsible, which correlates with lower risk.
• Credit score can also influence whether you're offered flexible payment terms.
• A driver’s history of accidents, traffic violations, and claims has a direct impact on their insurance costs.
• The area where you live and a driver’s history of accidents, traffic violations, and claims have a direct impact on insurance rates.

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Tips to manage & improve your credit score to lower insurance costs

If your credit score is affecting your car insurance premiums, there are several steps you can take to improve it, which may ultimately lead to lower costs. The list includes -

1. On-time bill payment

Make sure to timely pay credit card bills, loan EMIs, and other financial obligations, this will help improve your credit score. Late or missed payments are among the most common reasons for a lower credit score.

2. Reduce debt

Remember, high levels of debt negatively impact your credit score. Working towards paying off existing debt, particularly credit card balances, can improve your credit score over time and make you eligible for better insurance rates.

3. Avoid frequent credit inquiries

Applying for multiple loans or credit cards within a short time frame can lower your credit score. It’s better to be selective when applying for credit and avoid frequent inquiries.

4. Regularly monitor your credit report

Regularly checking your credit report allows you to spot errors that could be negatively affecting your score. Also, taking up inaccuracies with the credit bureau can result in a higher credit score

Using credit score to access car insurance cost: Pros & Cons

Pros	Cons
Better risk assessment: Credit-based insurance scores give insurers an additional tool to assess the risk of insuring a driver, potentially leading to more accurate pricing of premiums.	Impact of financial hardships: A single financial crisis, such as job loss or a medical emergency, could drastically lower a person’s credit score and unfairly raise their insurance costs.
Incentive to improve credit: Knowing that a good credit score can reduce insurance costs may motivate individuals to manage their finances more responsibly.	Lack of awareness: Many people may not realise that their credit score affects their insurance premiums, leaving them unable to take steps to improve it.

Bottom line

Understanding how your credit history impacts your premiums is essential for a car owner in the Philippines, especially since the link between the two is becoming more apparent. While credit-based insurance scoring is still a developing practice, maintaining a good credit score can help you secure lower premiums and better payment terms.

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