- Car Insurance vs. Credit Score: Getting car insurance won’t ding your credit score. It’s more like a friendly handshake with your financial record, not a full-on wrestling match.
- Credit Check Impact: Insurers may check your credit to determine your premium, but this is a soft check—no hard hits here, just a peek.
- Insurance as a Financial Guardrail: Think of car insurance as a safety net, not a weight on your credit score. It’s about protecting you, not dragging you down.
- Smart Moves: Keep up with payments and avoid policy lapses. This shows financial responsibility, helping both your insurance and credit game stay strong.
You know you’re old when you start caring about things like your credit score. But before you start throwing tomatoes, no one said that’s a bad thing.
Your credit score is essential; it predicts your credit behaviour, such as how likely you are to pay a loan back on time, based on information from your credit reports.
Financial institutions, i.e. banks, credit card companies, and insurance companies use credit scores to determine the creditworthiness of potential borrowers or clients.
A credit score helps the parties mentioned above decide whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as tenant screening and insurance.
So how does car insurance impact your car insurance?
How car insurance can impact a person's credit score
Car insurance does not directly impact a person's credit score.
Insurance companies don't report your premium payments to credit bureaus, so your policy does not appear on your credit report.
With that said, insurance companies will often use credit scores to determine the premium for a car insurance policy.
A credit score gives your insurance provider an idea of your level of financial responsibility and the likelihood that you will file a claim.
A person with a good credit score is often seen as a lower risk for filing a claim, which may result in a lower insurance premium. On the other hand, a person with a lower credit score may be seen as a higher risk, which could result in a higher premium.
Insurance companies use credit-based insurance scores to assess the risk of insuring a person.
The score is based on the information in your credit report and differs from a traditional credit score.
One thing to note is that insurance companies use credit scores as just one factor in determining premiums; other factors, such as driving history, age, and location, also play a role in calculating your premium.
The credit scoring system in South Africa and how it’s used to evaluate creditworthiness
In South Africa, financial institutions, including banks and credit card companies, use the credit scoring system to evaluate the creditworthiness of potential borrowers.
The credit scoring system assigns a numerical score to a person based on their credit history, indicating their likelihood of repaying debts.
A range of factors is used in the credit scoring system to determine a person's score; payment history, the amount of debt, the length of one’s credit history, the types of credit a person has, and recent credit inquiries.
A high credit score is more attractive to lenders and results in better loan terms, lower interest rates, and easier approval for credit.
The reason being a person with a high credit score has a good credit history and is seen as a low risk for not defaulting on their debts.
A credit score from 634 to 657 is considered good, and one of 658 to 740 is even better.
Anything from 615 and below needs a little bit of work.
Although the credit scoring system is used to evaluate creditworthiness, it is not the only factor financial institutions consider. Other factors, like income, employment, and debt-to-income ratio, can also play a role in determining your creditworthiness.
Your credit score might seem a distant concern, but individuals need to pay attention and take steps to maintain a good credit history.
Tips for maintaining a good credit score while getting car insurance
Want some tips on maintaining a good credit score while getting car insurance? I got you covered.
Tip #1: Shop around
Compare insurance options and prices from multiple providers to ensure you get the best deal.
Tip #2: Pay premiums on time
Late payments negatively impact your credit score, so make your payments promptly.
Tip #3: Keep your credit use low
Your credit utilisation, or the amount of credit you use compared to your credit limit, can impact your credit score. It’s best to try and keep your use low, preferably under 30%.
Tip #4: Check for errors on your credit report
Regularly reviewing your credit report for errors is helpful should you need to dispute any inaccuracies to maintain an accurate credit score.
Tip #5: Avoid opening too many credit accounts
Every time you open a new credit account, it has the potential to affect your credit score. So it’s best to limit the number of accounts you open.
Checking and disputing errors on your credit report
You don’t have to take a bad credit report lying down; a little investigation can uncover exciting information, like errors that may negatively affect your credit score.
Websites like ClearScore and Experian offer South Africans free credit reports in minutes.
Once you’ve generated your credit report, look for any errors or inaccuracies, i.e. incorrect information about your debts, late payments, or accounts that don’t belong to you.
If you find an inaccuracy, gather documents supporting your claim, including bank statements, billing statements, or letters from a creditor.
You can then file a dispute with the credit reporting bureau that issued the erroneous credit report.
A dispute can be done online, by mail, or over the phone.
You must provide the credit bureau with supporting documentation to simplify their investigation process.
The credit bureau will then investigate your dispute and notify you of their findings within 30 to 45 days.
If the dispute is resolved in your favour, the credit bureau will correct the error on your credit report.
But this can only be done by first bringing the mistake to their attention.
So, it's a good idea to regularly check your credit report for errors and dispute any inaccuracies swiftly to verify that your credit score is accurate and on point.
Information on credit counselling and debt management services for those struggling to maintain a good credit score
Credit counselling and debt management services are available in South Africa for individuals struggling to keep a good credit score.
Services such as these provide education and support for people to better understand and manage their finances, debt included.
Help can be found at the following places:
- National Credit Regulator (NCR). The NCR provides information and resources to help individuals understand and manage their credit and debt, including credit counselling services.
- DebtBusters. DebtBusters is a debt management and credit counselling company that offers services to help individuals manage their debt and improve their credit scores.
- Debt Rescue. Debt Rescue offers counselling services to help individuals get out of debt and regain control of their finances.
- Debt Care. Debt Care provides debt management services and credit counselling to help people manage their debt.
- Credit Matters. Credit Matters is a credit counselling and debt management service offering services to help improve your credit score and manage debt.
Nothing beats research and careful consideration of the options available to you.
Before choosing a credit counselling or debt management service, ensure the service you choose is reputable, accredited, and has a good track record of helping clients manage their debt and improve their credit scores.
In Summary
As previously stated, car insurance does not directly impact a person's credit score, as insurance companies do not report premium payments to credit bureaus.
But, insurance companies do use credit scores to determine a person's insurance premium. A good credit score is often seen as a lower risk for filing a claim, leading to a lower premium.
Other factors, like driving history, age, and location, also play a role in determining a person's insurance premium.
You can maintain a good credit score by shopping around for insurance, paying premiums on time, keeping credit use low, regularly checking for errors on your credit report, and limiting the number of credit accounts opened.
Lastly, don’t forget to check for inaccuracies in your credit reports and file disputes with credit reporting bureaus accordingly.
Now that you understand the impact of car insurance on your credit score, you're ready to get your personalised car insurance quote from Pineapple!
Pineapple (FSP 48650) is underwritten by Old Mutual Alternative Risk Transfer Insure Limited, a licensed Non-Life Insurer and authorised FSP. T&Cs apply. Premium is risk profile dependent.
Team Pineapple
Team Pineapple comprises our company’s top talents, who are dedicated to creating clear, high-quality content on essential vehicle insurance topics. This diverse group, including actuaries, accountants, data scientists, and insurance professionals across South Africa, collaborates to produce enlightening and empowering articles.
Each piece is thoroughly researched, factually accurate, and rigorously reviewed to ensure quality.
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