Fact Check: Is Your Car Insurance Premium Linked to Your Credit Score?

Owning a car goes beyond convenience—it offers freedom, peace of mind, and independence. However, it also comes with responsibilities, the most important being adequate insurance coverage. While choosing a car insurance plan, many wonder: does a low credit score affect the premium amount?

Let’s explore the role of credit scores in car insurance premiums in India and the actual factors insurers consider while calculating your premium.

Understanding Car Insurance

Car insurance is a financial safety net that protects vehicle owners against losses from accidents, theft, natural disasters, and other unforeseen events. It ensures that you are not financially burdened in times of distress. To maintain this coverage, policyholders pay a premium, the cost of which is influenced by several factors.

What is a Credit Score?

A credit score is a 3-digit number ranging from 300 to 900, which reflects your creditworthiness based on your borrowing and repayment behaviour. A higher score indicates responsible credit use, making you a less risky borrower in the eyes of lenders.

This score is used extensively in financial services, especially when applying for loans or credit cards, to determine eligibility and interest rates.

Does Credit Score Affect Car Insurance Premiums in India?

Unlike in some western countries where credit scores are a major factor in determining car insurance premiums, Indian insurers currently do not use credit scores for this purpose. Your creditworthiness, as reflected in your credit score, does not directly influence the amount you pay for your car insurance in India.

However, that’s not the full story.

The Indirect Link: Credit Score and Car Insurance

Though insurers do not directly factor in your credit score when calculating your premium, having a good score can indirectly influence your insurance journey:

• Better Financial Health: A good credit score often helps in securing loans at lower interest rates, which frees up money to invest in better insurance coverage.

• Flexibility in Add-ons: With stronger financial standing, you may afford useful add-ons like zero depreciation cover, roadside assistance, or engine protection.

• Higher Budget for Premiums: Improved cash flow due to lower EMIs or better loan terms may allow you to opt for a higher premium plan with better coverage.

Key Factors That Impact Car Insurance Premiums

If credit scores are not considered, then what really drives your car insurance premium? Here are the major factors:

1. Type and Value of Vehicle

Premiums are higher for expensive cars due to the increased cost of repairs and parts.

2. Age of the Vehicle

As the car ages, its market value drops, which typically leads to a lower insurance premium.

3. Driving History

A clean driving record with no claims or traffic violations often results in a lower premium, as you are perceived as a low-risk driver.

4. Coverage Level

Comprehensive policies with broader coverage cost more than basic third-party insurance.

5. Location

Cars used in metro cities or accident-prone areas may attract higher premiums due to greater risk exposure.

Tips to Improve Your Credit Score

Even though your credit score may not directly influence your car insurance premium in India, maintaining a healthy score is beneficial for your overall financial well-being. Here are a few ways to improve it:

1. Clear Dues on Time

Pay your credit card bills, loan EMIs, and other financial obligations before the due date.

2. Monitor Credit Reports

Check your credit report regularly for errors or fraudulent activity. You can dispute inaccuracies with the credit bureau.

3. Keep Credit Utilisation Ratio Low

Try to use less than 30% of your total credit limit. High utilisation may suggest poor financial discipline.

Final Word

While your credit score does not have a direct impact on car insurance premiums in India, maintaining good credit health can open doors to better financial products and improved liquidity. The actual insurance premium depends on tangible factors such as vehicle type, driving history, and extent of coverage.

Understanding these dynamics helps in making informed decisions—not just about car insurance, but also about maintaining your overall financial health.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.