Can good financial habits lower your car insurance premium?

Johannesburg - Just as a good credit rating can help secure favourable interest rates on loans; it can also play a role in determining the cost of short-term insurance policies. This is according to Sherry Sibeko, Executive Head for Personal Lines at Miway, who says many South Africans remain unaware that their credit score can influence their car insurance premiums.

“Your credit score is a reflection of your financial behaviour and risk profile, which insurers use to assess how reliably you manage your financial commitments,” explains Sibeko “This helps to determine the likelihood of missed payments or policy lapses, which can have a direct impact on the premiums you pay.”

The link between credit scores and premiums

In their risk assessments, insurers consider multiple factors, including the make and model of the vehicle, driving history, location, and even the policyholder’s financial stability. While credit scores are not the sole determinant of premiums, they provide insurers with a snapshot of a person’s ability to manage debt responsibly.

A strong credit score indicates that an individual pays their bills on time and maintains responsible borrowing habits. This level of financial discipline reassures insurers that the policyholder is less likely to default on payments, making them a lower-risk customer.

Negotiating better premiums

Understanding how creditworthiness influences insurance costs can empower consumers to take a more active role in managing their policies. “If you have a good credit score, you may be in a better position to negotiate lower premiums with your insurer,” says Sibeko “A common underwriting practice is to obtain client consent for an ITC/credit check.”

This is just one of many ways Sibeko says policyholders can influence their ability to obtain. better premiums. “Another approach is to review available pricing options to ensure you're getting the best value or highlighting a clean claims history to demonstrate responsible behavior. Policyholders should also explore potential discounts for bundling multiple policies,” Sibeko adds.

How to improve your credit score

Given the potential cost savings on insurance, cultivating good financial habits can pay off in the long run. Sibeko outlines four key steps to improving your credit rating:

1. Pay your bills on time: Late or missed payments can lower your credit score.
2. Manage your debt responsibly: Keep your credit utilisation low and avoid maxing out credit cards.
3. Check your credit report regularly: Review your profile for errors or signs of fraudulent activity, as most credit rating institutions offer consumers one free credit check per annum. Limit new credit applications: Multiple inquiries in a short period can negatively impact your score.

With Global Money Week putting financial literacy in the spotlight, it’s a timely reminder of how everyday financial habits can impact expenses like insurance. “Many South Africans don’t realize the full effect their financial behavior has on costs such as car insurance,” says Sibeko. “By adopting responsible financial habits, consumers can not only improve their credit standing but also unlock long-term savings on their premiums,” Sibeko concludes.