Credit Score and Car Insurance: The Hidden Truth for Indian Car Owners

Motor Blog
17 Mar 2026
Bajaj General Insurance
231 Viewed

You check your CIBIL score before applying for a home loan or a credit card. But do you check it before buying car insurance?

The answer is no. Countries like the United States of America use a credit-based insurance system where one's premium is based on one's creditworthiness as a borrower.

However, in India, the Insurance Regulatory and Development Authority of India does not permit premiums to be based on your credit score.

To clear the confusion on ‘does credit impact car insurance?’, let’s dive into this blog.

What Is the Credit Score and How Does It Impact Car Insurance?

A credit score is a 3-digit number ranging from 300 to 900. It is calculated by bureaus like CIBIL, Experian, or Equifax. The calculation is done on the basis of your loan repayment history, your credit card usage, and how long you have managed credit. Generally, a score above 750 is considered excellent.

However, in India, this number does not impact your car insurance.

Current insurance regulations in India do not link your CIBIL score to your car insurance premium. When you buy a policy, the insurer looks at your car instead of your loan history. Therefore, your premium calculation relies on the vehicle's risk, not your financial risk.

What is the Relation Between Credit Score and Car Insurance Premium?

As there is no direct link between credit and car insurance, the credit score does not determine your premium amount. Whether you have a low credit score like 600 or a high score like 800, your car insurance quote remains the same.

Instead, insurers in India focus on the following factors.

Insured Declared Value (IDV): This refers to the current market value of your car. It also indicates the maximum amount an insurer will pay for your car. A higher IDV means a higher premium.
Engine Capacity (cc): The Insurance Regulatory and Development Authority of India (IRDAI) fixes third-party rates based on engine size. Vehicles under 1000cc cost less to insure, while those with an engine size of 1500cc cost the most.
Geographical Zone: Cars registered in metro cities often have higher premiums due to higher traffic and accident risks.
Age of the Car: Lastly, older cars often have lower premiums because the IDV is lower and also because of depreciation.

Although data analytics is growing in the Indian insurance sector, financial credit score is not yet a parameter for determining auto insurance premiums.

Why Having a Good Credit Score Helps?

Even though a high CIBIL score does not lower your insurance premium directly, it is still important for a good car ownership experience. A good score saves you money in other ways, as discussed below.

Cheaper Car Loans: One of the biggest benefits of having a good credit score is cheaper loans for your car. For instance, having a score above 750 will lead banks to offer you lower interest rates on vehicle loans.

Easy Loan Approval: A good credit score gives the impression of trustworthiness. It enables lenders to approve your loan application instantly.

Better Credit Cards: Another advantage of a high credit score is access to premium credit cards. Many premium cards offer cash back or reward points on insurance payments, effectively giving you a discount.

How to Improve Credit Score for Better Insurance Premiums?

Although your credit score does not affect your car insurance premiums, you can use it to avail other benefits. Read on to know how.

Step 1: Boost Your Credit Score

Pay on Time: Make sure to never miss an EMI or credit card bill. This accounts for a huge chunk of your credit score.

Limit Credit Usage: Avoid maxing out your credit cards. Keep your credit card usage under 30% of your total limit.

Monitor Your Report: Make sure to review your CIBIL report for errors at least once a year. If you see any invalid or unjustified entry, report it to the right authority immediately.

Step 2: Lower Your Insurance Premium

Protect Your NCB: The No Claim Bonus (NCB) is one of the most effective ways to reduce premium costs. If you do not claim coverage for a year, insurers like Bajaj General Insurance give you a discount on your premiums.

Install Anti-Theft Devices: Installing an ARAI-approved anti-theft device in your car shows that you have taken precautions. This increases your chances of getting a discount on the premium.

Select the Right IDV: It is essential to correctly evaluate your needs and choose a motor insurance that is suitable for you. Overvaluing or undervaluing can increase or decrease your premium. But it can also lead to unwanted hassles when you file a claim.

Bottom Line

The current insurance system in India only considers your driving record and your car’s specifications, not your credit score. Although there is no direct connection between credit and car insurance, it is advisable to maintain a high credit score to avail other benefits.

Focus on safe driving to earn your No Claim Bonus, and maintain financial discipline to keep your CIBIL score high.

FAQs

Does credit score impact car insurance in India?

No, credit score does not impact car insurance in India. Insurers do not check your CIBIL or credit score while calculating your premium. They focus on the car's model, age, engine capacity, and your claim history.

Can we renew car insurance before expiry?

Yes, you can renew your car insurance policy up to 60 days before the expiry date. Renewing your policy on time is crucial for maintaining coverage. If it remains lapsed for more than 90 days after the expiry date, you lose your accumulated No Claim Bonus (NCB). This means that you have to go through the process of buying a new policy from the start.

Can I claim GST on car insurance?

You can only claim the GST Input Tax Credit (ITC) if you use the car for business purposes. The insurance invoice must contain your business GSTIN. You cannot claim GST input for a personal vehicle used for private purposes.

Which car insurance should I buy?

For cars less than 5 to 7 years old, buy a comprehensive policy from Bajaj General Insurance. It covers damage to your own vehicle and third-party liabilities. For very old cars with low value, a third-party policy or pay-as-you-drive policy might be more cost-effective.

How much premium do I have to pay for car insurance?

The premium rates for car insurance vary depending on the kind of policy. For example, for third-party car insurance for a 1000cc car, the premium starts from ₹2,094. Comprehensive car insurance plans may be more expensive.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.