Car insurance companies in most states use an applicant's credit score and credit history when calculating their premium. As a result, many applicants might wonder, does an insurance quote affect credit score? The simple answer is no.
Do Car Insurance Quotes Affect Credit Scores?
Insurance quotes do not affect credit scores. Even though insurance companies check your credit during the quote process, they use a type of inquiry called a soft pull that does not show up to lenders. You can get as many inquiries as you want without negative consequences to your credit score. This is because the insurance company is not looking at your actual score; it is just using your credit report information.
What Are the Types of Credit Inquiries?
There are two types of credit inquiries:
- Soft Pull: A soft pull is also called an involuntary inquiry. It's used when creditors send potential customers preapproved offers and when potential employers check job applicants' credit history. Checking your own credit score is also considered a soft pull because you aren't actively seeking credit. It has no effect on your credit score.
- Hard Pull: A hard pull is voluntary, which means you asked for the credit check because you are applying for credit. You complete an application giving a lender permission to run a credit check, and they use the information to decide whether to approve your credit application and determine its terms. A hard pull indicates you're actively shopping for credit, and it will be visible to other lenders. Too many hard pulls are bad for your credit score.
Why Do Insurance Companies Check Credit Scores?
Insurance companies check credit scores to gauge the risk they are taking to insure you, explains Progressive. Studies show that people with lower credit scores have a history of filing more claims, which makes them higher risk. Higher credit scores correlate with a lower risk of claims. Drivers with lower credit scores usually pay higher premiums than those with high credit scores.
What Is an Auto Insurance Score?
According to WalletHub, an auto insurance score is a rating insurance companies use to predict if someone is likely to file a claim. Insurers use information from credit reports to determine the risk.
Insurance companies consider a few factors when determining auto insurance scores. These include:
- How recently you applied for other credit, such as an auto or home loan
- Your history of on-time payments
- How much of your credit card limits you use
- The number of loans and open lines of credit you have and how old they are
- Your debt
- Foreclosures and bankruptcies
Once you apply for insurance coverage, you authorize the insurer to get your credit and other information they need to calculate your premium. In some cases, a company will ask for your authorization to view your credit information when putting together a quote so they can calculate a more accurate estimate. In both cases, the query is a soft pull and won't affect your credit.
Do All States Use Credit Scores to Calculate Insurance Premiums?
A few states do not use credit scores to calculate premiums. California, Hawaii, and Massachusetts have laws preventing insurers from using credit history to set insurance rates.
Because most states do check credit, having bad or no credit can increase your rates. Depending on the state and insurer, some people can pay an average of 67 percent more in premiums for their car insurance than people with excellent credit. Below-average credit raises rates more in some states than in others.
What Is a Credit Score?
Equifax explains that a credit score is a three-digit number indicating the likelihood that you will pay your bills and do so on time. The three main credit bureaus are Equifax, TransUnion, and Experian. These bureaus calculate your credit score based on your credit report, which includes:
- Your payment history
- Your debt
- The length of your credit history
Different credit scoring models use different sets of data. Some models include your income to calculate credit scores, and others include how much of your available credit you use.
Do Credit Scores Affect Car Insurance Premiums?
Most car insurance companies will pull your credit report and use your credit score and credit history as just one factor when setting premiums. Keeping your credit score high will benefit your finances in many ways, including keeping your insurance premiums low.
While your credit history can affect your premiums, it is not the only factor insurance companies consider when setting rates. They also look at:
- Your driving history, which has an even more significant impact on premiums
- Where you live
- Your age
- Gender
- Marital status
- The type of vehicle you drive
Do Insurance Companies Disclose a Credit Inquiry?
Some insurance companies disclose credit inquiries to potential customers, while others do not. GEICO reveals it will pull a credit report in states where it's permitted but confirm it doesn't affect the applicant's credit score.
The State Farm website confirms a connection between credit and insurance claims, but it does not state whether the company uses a credit inquiry. The site does indicate that many insurance companies use credit-based scores to help determine premium rates where the law allows.
In most states, insurance companies check your credit score to estimate the risk to insure you. These checks are soft pulls, so they will not affect your credit score. Because getting multiple insurance quotes won't affect your credit score, shop around with several insurance companies to make sure you are getting the best rate.
Check this out if you need additional information, resources, or guidance on car insurance.
Sources:
What Is A Credit Score | Equifax.com
Auto Insurance Scores | Wallethub.com
Does Credit Score Affect Car Insurance | Caranddriver.com
How and Why Progressive Uses Insurance Scores | Progressive.com
Car Insurance | Caranddriver.com
Hearst Autos Research
Hearst Autos Research, produced independently of the Car and Driver Editorial staff, provides articles about cars and the automotive industry to help readers make informed purchasing choices.
