Whether you are a first-time car owner or a long-time policyholder, car insurance is essential for all. Now, this requirement comes at a cost, which is reflected in the premium. But did you know that there are factors influencing this particular cost? Traditionally, the factors include driver’s age, driving history, coverage, and location; however, in modern times, another factor is emerging: the credit score.
Yes, these days, many insurance companies around the globe consider credit scores to assess applicants' risk profiles. It is a relatively new concept in the Philippines, with providers slowly adopting it.
In this guide, we’ll explore the relationship between credit scores and car insurance, helping you make better financial decisions and protect your vehicle without breaking the bank.
Understanding credit score - An overview
An individual's credit score plays a huge role in determining their overall financial health. For Filipino car owners, it is essential, as it may affect their car loan applications and even insurance rates.
What factors influence your credit score? It gets impacted by your payment history, length of credit history, outstanding debt, new loan applications, and types of credit used.
Which agency tracks your credit history? In the Philippines, the Credit Information Corporation (CIC) is the body responsible for managing credit data. The score gets influenced by the information submitted by banks, leading companies, and other financial institutions.
Also Read: Thinking of insuring your old car in the Philippines? Here's all you need to know
Credit score & car insurance cost
Although the credit-based insurance score is still a new concept in the Philippines, it is widely adopted globally. It helps providers to evaluate the risk potential of the applicants.
Photo from FreepikWhat do providers check in your credit history?
Credit scores are seen by providers as a parameter for assessing an applicant's financial responsibility. A high credit score suggests that an applicant is likely to pay on time and file a claim in a reasonable manner. Here’s what a strong credit score may lead to in the insurance world -
- Lower premium
- Better coverage options
- Better offers and discounts
On the other hand, a low score might increase the premium, as insurers consider such plan holders as high-risk clients.
Other factors that influence the premium
Vehicle age & type: New cars are typically costlier to insure because they are expensive to repair and their parts are expensive.
Driver’s age & driving history: Compared to experienced drivers, young & new drivers typically pay a higher premium due to limited experience.
Location & usage: Driving in high-risk areas, such as major cities, increases your premium.
Common myths
Myth 1: Credit score does not matter
Reality: While not a common practice, insurance providers have begun incorporating credit scores as a cost-determining factor
Myth 2: All insurance providers consider credit score
Reality: Not at all, many insurance providers still rely on traditional factors like the car’s model & make, driving history, and coverage.
Myth 3: Making a full payment at once helps avoid evaluation
Reality: This is not true; even if you pay cash, the provider still investigates your financial background.
Also Read: 8 Dangerous car insurance scams to beware of in the Philippines
Why should you care about your credit score?
As a Filipino car owner, you should care about your credit score, especially if you are about to buy or renew your car insurance. Here’s why we say so -
Adoption of credit-based insurance scores: The Philippine insurance market is beginning to show a new trend, with providers increasingly using credit-based insurance scores to screen car insurance applications.
Cost impact: In the future, if all drivers adopt credit-based insurance scores, drivers with better credit scores will enjoy discounted premiums. On the other hand, owners with poor credit scores might have to pay more.
Better insurance deal: Good credit history and score help you get better insurance terms and favourable car loan deals.
Photo from FreepikLow credit score? Is it possible to get insurance?
Many car owners with low credit scores wonder if they can get insurance coverage. Especially if the provider gives weightage to this particular factor. The answer is yes. Even with a low credit score getting car insurance is possible.
In the Philippines, most insurance providers approve applications after analysing the applicant's driving history, car make/model, location, coverage, and age. Credit-based scoring is still not widely used as of now.
For providers that consider credit score a factor, they will grant you coverage with a low score; however, you might be charged a high premium, offered no/fewer discounts, and have limited coverage options.
In such a case, you are suggested to do the following -
- Shop around and compare quotes from multiple insurance providers
- Work on improving your score
- Improve your driving record, have a claim-free history
Tips to improve your credit score
It is a good idea to improve your credit score - not only for a better credit-based insurance score but for your overall financial health. Here are a few recommendations -
- Pay your credit card dues and other bills on time, every time
- Don’t apply for too many loans within a short span of time
- Keep your outstanding credit card balance low compared to your available credit
- Maintain a healthy and long-standing credit history
These habits, if adopted and practised consistently, will lead to improved credit scores over time, helping you secure lower premiums and better offers.
Also Read: The rights of a car insurance policyholder in the Philippines
Bottom line
If you are a new car owner looking to buy insurance or planning to renew your policy, it is a good idea to check your credit score. Why? Well, you see, maintaining a healthy credit score isn't just about loans; it also affects your car insurance costs. Indeed, credit-based scoring is not yet widely used in the Philippines, but insurers have begun adopting it as part of their risk assessment.
By maintaining a good credit score - via paying bills on time, low debt, and avoiding unnecessary credit inquiries - you can save substantially on loans and insurance premiums.
Just by understanding how a credit score affects car insurance costs, along with practices like maintaining a clean driving record and selecting the right coverage, you can drive safely, peacefully, and affordably.
Also Read: Hit-and-Run accidents in the Philippines: What your car insurance actually covers
FAQs
Q1. Does a credit score affect your car insurance cost?
Ans. Some insurance providers have begun considering applicants' credit scores among many factors in determining premiums. The application is still in the early phase, but is expected to have a considerable influence in the future.
Q2. What if my credit score is low? Will my car insurance application get approved?
Ans. Yes, you’ll get car insurance; however, a low credit score might lead to a high premium.
Q3. What does the term ‘credit-based insurance score’ mean?
Ans. A credit-based insurance score is a rating based on the client's credit history. The insurer uses it to predict the likelihood that the client will file an insurance claim. The score is used to determine the premium, ensuring it matches the level of risk posed by the applicant.
Q4. Why do insurance providers use credit history to assess insurance risk?
Ans. Research suggests that individuals with poor credit scores or histories are statistically more likely to file an insurance claim. This practice allows insurers to predict risk more accurately.
Q5. Apart from credit score, what other factors do providers consider when determining premiums?
Ans. Insurance providers consider the following factors: vehicle type & value, driving history, location, claim history, usage, and coverage.
Q6. Does paying off debts lower premiums?
Ans. Paying outstanding debts can improve your credit score, which may entitle you to lower rates.
Q7. Do all insurance providers in the Philippines use credit-based scoring?
Ans. The use of credit-based scoring is currently not that widespread, and its usage varies from insurer to insurer. Most providers still rely on factors such as car profile, driving history, and traditional risk factors.
Q8. How long should I maintain good credit habits before seeing better scores & insurance rates?
Ans. Good credit habits, like on-time payments and lower debt, generally take a month to be reflected in your score and, eventually, in your insurance rate.
Q9. Should I check my credit score before applying for car insurance?
Ans. Yes, it is recommended to review your credit history and score before applying for a car insurance policy or a loan. This gives you a clear picture of the situation and motivation to take corrective steps.
Q10. Does the type of car, location, age, etc., matter more than credit score when determining premium?
Ans. There’s no doubt that the type of car, driver’s age, location, etc, are core factors in premium calculation. But some insurers are also using credit score as an additional factor these days.
Q11. If my credit score improves, should I inform my insurance provider?
Ans. It is a good idea, especially if you are renewing your policy. An improved credit score might earn you a better insurance rate.
Q12. Does filing an insurance claim affect the policyholder’s credit score?
Ans. Not necessarily, as filing a claim has no direct impact on the credit score.
Also Read: What you might not know about the car insurance participation fee
