Does Getting Car Insurance Quotes Affect My Credit Score?

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In many states, car insurance companies will consider your credit history before providing you with a quote. While shopping around for car insurance quotes, you may wonder how your recent inquiries will impact your credit score.

So, can obtaining an auto insurance quote have a negative effect on your credit?

The short answer is no. Comparing multiple insurance quotes from dozens of providers will not lower your credit score.

When an insurance company factors your credit score, they only do a soft pull on your credit. It will not show up on your credit report, nor will it lower your score the way a hard pull does, such as when you’re applying for a credit card or a loan.

So, if it doesn’t affect your score, what happens when an insurance company checks your credit while you are comparing quotes? Why is this information needed, and does it impact your premium cost?

Why Do Insurance Companies Check Your Credit When Offering a Quote?

In several states, insurance companies collect credit history for several reasons. In the 1990s, insurance scores were introduced to the industry by FICO, the best-known data analytics company for generating credit scores. According to FICO, 95% of auto insurance providers use credit scores to determine premiums, but only in states where this practice is allowed. Over time, the scores collected began to predict risk and the possibility of a person filing an auto insurance claim.

The states that prohibit or have strict restrictions on the use of consumer credit data by insurance companies include:

In most U.S. states, insurance scores correlate below-average scores with more frequent and expensive claims. Usually, in states where the practice is allowed, the scores may help determine insurance rates. But they are not the primary reason for insurance companies raising their premiums or canceling coverage for policyholders.

How Do Auto Insurance Providers Use My Credit Score?

When an insurance company uses your credit details to determine rates, they do not pull the same information that a credit card issuer or a lender would. Instead, they use something known as credit-based insurance scores.

A credit-based insurance score can help determine the likelihood of you filing an auto insurance claim. The score is based on several factors taken from your credit report. These factors can include the following:

  • How long it has been since you applied for credit, such as a credit card or a loan
  • How reliable you are with making payments on time
  • How much of your credit card limits you use, in the form of a percentage
  • The amount, type, and age of a loan or any credit card accounts in your name
  • The amount of debt you currently owe
  • If you have any accounts in collections, have past bankruptcies, or any foreclosures in your credit history

Using your credit history details to determine if you are more likely to file an insurance claim is similar to the same practice used when your FICO score is pulled when you apply for a loan.

When a lender does a hard pull on your credit, they gather details from your credit history that show them how likely you will pay your loan back on time. Credit scores are also commonly used to determine credit limits, loan terms, and interest rates.

How Does My Credit Score Play into the Final Cost of my Policy?

While the soft pull on your credit from insurance companies will not directly affect your credit score, the information your history provides could impact the final cost of your policy. Here are three ways that your credit can affect your insurance.

Your Credit History Contains Information That Insurers See as Risk Factors

Before an insurance company provides coverage to a new customer, they will consider the potential risks involved, based on that individual’s credit history. A car insurance company, for example, might consider your driving history, which can include violations and accidents, to determine how likely the person may be to file an insurance claim.

The same goes for your credit report. The information in your credit history helps the insurer create a credit-based insurance score. This number allows the insurer to get a better idea of your risk level and helps them make an accurate decision regarding your auto insurance coverage, and in some cases, your premium.

Credit-based insurance scores are prevalent throughout the insurance industry. It is estimated that around 95% of all car insurance companies base their underwriting process on the policyholder’s credit-based insurance score (in states where this practice is allowed).

Unlike your typical FICO credit score, a credit-based score isn’t available to the public. To get an idea of your risk factors, the insurance company looks over your credit report and history for the same factors lenders and creditors consider. For example, Progressive Insurance considers a potential customer’s current credit balances and their payment history in their underwriting process.

Suppose you have a low credit-based insurance score, and there are other factors on your credit report that could put you at a high risk of filing a claim. An insurance company may deny you a policy, or they may charge you a much higher premium.

Your Credit-Based Insurance Score Could Impact Your Eligibility to Take out a Policy

For most people, if you have a low credit score, it will not prevent you from purchasing a car insurance policy. However, a low score may stop you from getting the policy you want from a particular company. If your credit-based insurance score is extremely low, an insurance company could refuse to offer a policy. That means you will have to look elsewhere as you work on improving your credit score.

Your Credit Score Could Affect Your Policy Rate

The cost of your insurance premium could be affected by your credit score. The higher your credit score is, the lower your payments will almost always be. If your credit score is low and there are several negative items on your report, your insurance premiums will likely be more expensive than policyholders who have good credit.

Statistics from Consumer Reports show that drivers with “good” credit scores paid on average between $68 to $526 more each year for their insurance than those who had “excellent” credit scores. If you are in an accident or receive a traffic violation that causes your premium to go up, having bad credit could contribute to the price hike.

Remember that you have the right to obtain a free copy of your credit report. If your insurer has recently raised your premium due to poor credit history, it’s in your best interest to pull your credit report and look at your record for any mistakes or unfamiliar activity.

If you are currently searching for a better car insurance rate because your credit score has gotten worse or for any other reason, check out Compare.com for a fast and easy process. There, you can obtain quotes from over 60 of the top auto insurance companies to find a new policy that works best for your budget.

In fact, many of the companies Compare.com works with specialize in car insurance for drivers with below-average credit, meaning you could find some big savings by switching from one of the larger carriers.

See how much you can save with Compare.com

FAQs

Why Do Insurance Companies Look at My Credit?

Insurance companies will check your credit score and credit history to determine the risk involved if they provide you with coverage. With poor credit, missed payments, or declared bankruptcies in the past, the insurer may determine you as a high risk for their company.

What are the Best Insurance Companies for People with Bad Credit?

Because low credit scores often contribute to higher premiums, those with poor credit should choose an insurer that offers usage-based insurance or one that doesn’t perform a credit check.

Drivers with a low credit score are also encouraged to select a company that caters to high-risk drivers, since policyholders who have poor credit are often placed in the same category as high-risk drivers.

Companies that do not check your credit when applying for a policy and provide coverage to high-risk drivers include:

How Does My Credit Score Affect My Rate?

Your three-digit credit-based insurance score affects your car insurance rate in the same way your FICO credit score affects how much interest you pay on a loan. If you have a higher credit-based insurance score, your auto insurance premiums will be lower.

What is a Credit-Based Insurance Score?

A credit-based insurance score is a three-digit number used by insurance providers to help them determine if you are at a high risk of filing an insurance claim. There are different credit-based insurance scores. LexisNexis Risk Solutions builds scores known as Attract scores. FICO is also responsible for creating credit-based insurance score models.

What is the Difference Between a Hard Pull and a Soft Pull on My Credit?

There are two types of credit inquiries, and it’s essential to know the difference between them.

Hard Inquiries: Anytime you apply for a credit card or a loan, these inquiries show up on your credit report. These credit checks are known as hard inquiries or a hard pull. They can have a negative effect on your credit score. That’s because they show how recently and how often a person has applied for credit.

Recent hard pulls on your credit are usually factored into the lender or creditor’s final decision because these hard inquiries show that you have recently acquired more debt.

Soft Inquiries: A soft inquiry or a soft pull occurs anytime your credit is reviewed by yourself, a lender, or in some cases, a car insurance company when you are searching for a quote. A soft inquiry does not show up on your credit report and will not have any sort of impact on your credit score.

Can Bad Credit Prevent Me from Getting a Policy?

Some companies may refuse to provide you with a policy if your credit score is too low. While this does not mean you cannot get car insurance at all, you may not be able to get the policy you want from the company you had in mind. That’s why it’s important to use car insurance comparison sites like Compare.com.

What Information From my Credit History Can an Insurance Company See?

In most cases, there are five factors insurance companies use to determine your credit-based insurance score. They include your payment history, outstanding debt, the pursuit of a new credit card, the length of your credit history, and credit mix.

Are There Any Insurance Providers Who Don’t Look at Your Credit? 

Yes, several car insurance companies do not perform a credit check when issuing you a policy. These are usually non-standard providers that specialize in high-risk drivers. However, if you live in a state that has banned insurance companies from checking your credit score (California, Hawaii, and Massachusetts), you can get a car insurance policy from any company you choose.

How is an Insurance Credit Score Calculated?

Insurance-based credit scores are based on the policyholder’s credit rating. Insurers determine the score using a property claim database such as the Comprehensive Loss Underwriting Exchange or the Automated Property Loss Underwriting System. The scores can range between 200 and 997. Most insurers prefer insurance scores that are 770 or above. Scores that are 500 and below are considered poor.

Is it Better to Build your Credit Score with Car Insurance or a Credit Card?

If you are interested in building your credit score to get a loan, you need to work on your score by making your credit card payments on time and avoiding accounts going into collections. You can’t build your FICO credit score by making car insurance payments. Insurance companies do not lend out money. The only way to use your auto insurance payments to build up your credit score is to make your payments each month using your credit card and then make sure you pay your credit card bill on time each month.

How to Find the Cheapest Insurance for Bad Credit

Now that you understand more about how comparing auto insurance quotes will (and will not) affect your credit, it is time to see how much money you’re leaving on the table each month.

Visit Compare.com to save time and money while comparing multiple quotes side-by-side for free.

Choose the policy that works best for your driving situation and your budget and start enjoying the savings you’ll receive with your brand new auto insurance policy.

To learn more about comparing auto insurance quotes visit Compare.com today or simply enter your ZIP code below.

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