Everyone’s worried about their finances right now, but it’s vital that you don’t cancel your insurance or default on your insurance premiums. This will not only put you in a difficult financial situation if something valuable is damaged or stolen, it’ll also affect your ability to get insurance, or any form of credit, in the future, as your credit score will be impaired. “It’s hugely risky to cancel your insurance, as a time of crisis is when you actually need insurance the most. And don’t just stop paying: Bad credit decisions can come back to haunt you later. But there are several things you can do to make sure you pay the lowest premium possible, especially during lockdown. Talk to your insurer now and make a plan in the short term, rather than suffering long term consequences,” says Wynand van Vuuren, partner of customer experience at King Price. Defaulting on your insurance premiums will see you being reported to the credit bureaux for non-payment, which will negatively affect your credit score. A credit score is a 3-digit number that helps lenders evaluate how safe or 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 credit you’ve ever taken, and how you’ve paid them back, as well as how reliable you are with your other monthly payments. So why does your credit score affect your insurance premium? Insurance companies use a range of factors to assess your risk and determine the premium you will pay. For a car, these include the security measures where you park your car; the age, make and model of the car; your age and driving history; your accident and claims history – and your credit score. “You may not realise it, but your credit score is a powerful predictor of your financial behaviour. It shows lenders and financial institutions how likely you are to pay your bills and default on debts. As such, when it’s combined with other factors, it tells an insurer how risky you would be to take on as a client, and this risk will be reflected in your premium,” says Van Vuuren. According to insights and data company TransUnion, the biggest influence on your credit score is your account payment history – that is, how you manage your accounts and whether you make the monthly payments on time. To improve your credit score, focus on paying the full instalment of every bill on time, so you’re offsetting past negatives with more recent positives. It also helps to maintain a healthy mix of credit – store accounts, credit cards, a home loan, and service contracts such as cell phone accounts – to establish a good credit history. The bad news is that a negative credit score can take 2 years to fix. The good news is that it’s easy to obtain your credit report. You can download your credit report once a year, for free, from TransUnion. Source: FA News
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AuthorKevin Yeh Archives
January 2025
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