Insurers have found correlations between creditworthiness and the likelihood of filing insurance claims, prompting them to consider credit scores as part of their underwriting process. In states they are allowed, companies may check credit history when they calculate premiums. The good news is that obtaining a car insurance quote generally does not affect your credit score. Insurance companies typically conduct soft pulls, which do not have any negative impact on credit scores.
What is a Credit Score and How Do Insurers Use It?
A credit score is a three-digit number that reflects your creditworthiness and your ability to pay bills on time. Insurance companies rely on credit-based insurance scores, which are derived from information found in your credit report. These scores help predict the likelihood of a customer filing an insurance claim. Factors such as total amount owed, average age of accounts, and other credit-related details are taken into consideration.
Auto insurance companies often check credit scores to evaluate the risk associated with insuring an individual. Studies have shown a correlation between lower credit scores and higher instances of insurance claims, while those with higher credit scores tend to file fewer or less expensive claims. As a result, individuals with lower credit scores often face higher insurance premiums compared to those with higher scores.
Although credit scores are considered by insurance companies, they are not the sole determining factor in calculating insurance premiums. Other factors such as driving history, geographical location, age, gender, marital status, and the type of vehicle you drive also play a role in the final premium amount.
Why Insurance Quotes Won’t Hurt Your Credit Score
Insurance companies use a type of credit inquiry known as a soft pull when checking your credit score during the quote process. Soft pulls are inquiries that do not affect your credit score and are not visible to lenders. Although these inquiries will appear on your personal credit reports, they have zero impact on your credit score. Therefore, you can request multiple insurance quotes without worrying about negative consequences.
A soft credit history pull is a non-impactful review of your credit information conducted without your permission, providing limited details about your credit history. It does not affect your credit score and is often used for informational purposes, such as pre-approved offers, background checks and insurance purposes. On the other hand, a hard credit history pull is a comprehensive examination of your credit report that can impact your credit score. It requires your authorization and is typically conducted by lenders when you apply for mortgage, loan or credit card, providing detailed information to assess your creditworthiness. Multiple hard inquiries within a short period can potentially lower your credit score, while soft inquiries have no such impact.
States That Prohibit Credit Checks for Insurance Applicants
While most states allow insurance companies to check credit scores to calculate premiums, there are exceptions. California, Hawaii, Massachusetts and Michigan have laws in place that prohibit insurers from using credit history to set insurance rates. In these states, your credit score will not be a factor in determining your insurance premiums. Furthermore, many states have rules preventing vehicle insurers from refusing to insure an applicant solely because of poor credit score.
Shopping for Insurance Quotes: Why It’s Important and Safe for Your Credit
When shopping for car insurance, it’s crucial to compare quotes from different insurers to ensure you get the best coverage at a competitive rate. Fortunately, obtaining multiple insurance quotes will not harm your credit score. Therefore, you can freely explore your options and make informed decisions without worrying about negative effects on your credit.
By shopping around and obtaining multiple quotes, you can potentially save a significant amount of money on your car insurance premiums. Prices can vary widely between companies, so it’s important to do your due diligence and consider different options. Additionally, insurance companies may periodically adjust their rates, so comparing quotes regularly can help ensure you’re getting the best deal possible.