what you need to know

If you have ever applied for a home loan, a car loan or even a mobile phone contract, you will know that credit points count.

They play a big role in whether you get loans, and the interest rate for these loans will be. But does a low credit score affect your insurance premium? And if you default on your insurance, does it affect your credit score?

The short answer to both questions is ‘yes’, says Wynand van Vuuren, the customer experience partner at King Price Insurance. Failure to pay insurance premiums can affect your credit score, while conversely, a low credit score may see you pay more for insurance.

Your credit score is a three-digit number that helps lenders evaluate how safe and risky you are as a customer. It’s based on the information contained in your credit report, which is a history of all the loans and credits you’ve ever taken out, and how you repaid them, as well as how reliable you are with your other monthly payments, Van said. Fires.

How Your Credit Score Affects Your Insurance Premium

When you apply for insurance, insurers use a variety of factors to assess your risk, which ultimately determines the monthly premium you will pay, King Price Insurance said.

For a car, an insurer will typically look at the age, make and model of the car; your age and riding history; the safety measures in the area where you park your car the most; your accident and claim history; and your credit score.

“Your credit score is a powerful predictor of your financial behavior. It shows lenders and financial institutions how likely you are to pay your bills and default on debt. Combined with other factors, it helps to paint a picture for an insurer of how. “and you would be risky to take as a client. And yes, this risk will be reflected in your premium,” said Van Vuuren.

How you do not pay for insurance affects your credit score

For many South Africans, times are tough at the moment. TransUnion’s 2021 Q4 Consumer Pulse Study shows that more than half (55%) of households still feel the effects of the pandemic on their finances. Of these affected households, more than eight out of 10 (85%) remain ‘highly concerned’ about their ability to pay their current bills and loans.

But the decline in your insurance premiums will not only put you in a difficult financial situation if something valuable is damaged or stolen. It could also affect your ability to get insurance, or any form of credit, in the future, if your credit score will be affected, King Price Insurance said.

“If a debit order fails, it registers with the credit bureau as a failed payment and can affect your score – making it harder in the future to get credit, not to mention insurance,” Van Vuuren said.

And if your finances are so tight that you’re thinking of canceling your insurance altogether, think carefully. “It is extremely risky to cancel your insurance because it is a time of crisis that you need insurance the most. Talk to your insurer now and make a plan in the short term, instead of long term consequences,” Van said. Fires.

Credit score meaning

Your credit score and other factors affect whether you are approved for credit, how much you can borrow and, most importantly, how low or high your interest rate will be, said Ester Ochse, Product Head: FNB Money Management.

“A credit score is basically a report card of how well you manage your credit that you get through various financial institutions and retailers. Products such as credit cards, personal loans, home loans, and store cards are some examples of the forms of credit you can get. get from financial institutions.

“Your credit status is usually displayed in a number format at various credit bureaus, and the higher the number, the better you have managed your current and past credit,” Ochse said.

This score gives financial institutions the level of risk they will take if they extend your credit. The better your credit score, the more likely you are to receive credit and possibly at a better interest rate, Ochse said. The lower your credit score, the less likely you are to get credit, and if you do, the rate will be higher.

These are the factors that negatively affect a credit score:

  • Be late on monthly payments
  • Monthly payments are missing
  • Often apply for credit
  • Credit usage has been steadily rising
  • Having a judgment against you
  • Bankruptcy declared

There are a few steps that can be taken to prevent a negative impact on your credit score, Ochse said. “Adjust your debtor order dates as closely as possible to your salary date. This way you know they’re being paid, and you do not have to worry. Have an emergency fund in place for unforeseen events and expenses; this way you do not have to go on credit. trust.

Set and stick to a budget. Check your score regularly to make sure you are on track and spending money on things that matter. ”

To read: South Africa is going through big interest rate changes – something you need to know

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