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KEY POINTS
- Using an applicant’s credit score when determining car insurance premiums is not currently the industry standard in Australia.
- Insurers will often consider risk factors other than your credit score when setting your car insurance premium.
- You can check your credit score for free with Canstar or via the Canstar App.
Does my credit score affect car insurance in Australia?
Your credit score will generally not affect the car insurance premiums you’re offered in Australia, so the good news is that even if your credit score has recently taken a ding, your car insurance premiums are unlikely to go up as a result. That said, it’s not completely out of the question for your credit score to have some sort of impact on your premiums, but this will ultimately depend on how your insurer assesses risk. Using credit score as a risk factor in determining car insurance is not the industry standard in Australia. It is, however, something worth keeping in mind when comparing your car insurance options, as some providers may inquire about your credit history (e.g. if you’ve claimed bankruptcy in the past).
What is your credit score?
Your credit score/rating is a numerical score that is taken into account by banks and lenders when assessing how trustworthy you are as a borrower, with a higher number denoting a higher level of trustworthiness.
It’s calculated by taking into account your credit history and other personal information (e.g. your employment and residential history). Your credit score can be used by lenders when you apply for credit products such as car loans, personal loans, credit cards and even home loans, giving them a better understanding of how trustworthy and consistent you are when borrowing money.
You can check your credit score for free with Canstar or via the Canstar App.
Do Australian insurers use credit scores to calculate car insurance premiums?
Some insurers do consider credit scores when determining car insurance premiums in Australia, however, this is generally not the case. Car insurance policies are typically taken out online through automated systems, meaning that it would not be practical for an insurance provider to check an applicant’s credit score upon signing up. This is also why many car insurance providers offer deals and discounts for new customers who take out policies online.
Insurers who do consider credit score as a risk factor may argue that individuals with lower credit scores might be deemed riskier than those with higher scores, although there is little research to suggest this. Insurers are more likely to consider risk factors such as your age and gender, where you live, your driving and claims history and the car you are insuring when setting your premiums.
How to improve my credit score for better insurance rates
While you may not necessarily see lower car insurance premiums by improving your credit score, it’s often something worth keeping in mind regardless. If you want to improve your credit score, here are some things you can do:
- Pay your bills and loan/credit card repayments (if you have any) on time.
- Weigh up your options before applying for new forms of credit. Making several credit applications in a short space of time may suggest to lenders that you are desperate for credit.
- Check your credit report for inaccuracies.
- Lower the limit on credit cards you already have. Lenders often look at larger credit limits as larger amounts of potential debt. Keeping forms of credit that you can manage, however, can help to improve your score, as it can show that you are trustworthy with the credit available to you.
- Contact your credit provider or a financial councillor if you find yourself in financial stress. There are also free services, such as the National Debt Helpline, which offer independent and confidential support and advice for those in need.
If you’re interested in comparing your car insurance options, you can do so using Canstar’s comparison tables. It’s important to read any relevant documentation, such as the Product Disclosure Statement (PDS) and Target Market Determination (TMD), for any car insurance policy you are considering.
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