Do Insurance Quotes Affect Your Credit Score?
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UPDATED: Mar 13, 2020
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Is Car Insurance a Hard Inquiry?
Insurance Q&A: “Do insurance quotes affect your credit score?”
The current economic environment, along with the daily reminders we get about the importance of our credit score, has us all wondering if shopping for insurance will affect our credit score, and subsequently cost us money in the long run.
The good news is shopping for insurance has absolutely no effect on your credit score, despite what you may have heard from the so-called experts! However, there is some information you should be aware of.
Insurance companies have begun to use your “credit” as a means to determine how much to charge you for insurance coverage. See credit scores and car insurance rates for more on that.
Of course, there are still many companies that will provide insurance without using credit scoring to determine the rate, so don’t panic.
Correlation Between Credit Score and Insurance Claims
If you’re wondering why insurance companies pull your credit, it’s quite simple. Studies have revealed that there is a positive correlation between your credit score and your propensity to file an insurance claim. In short, those with lower credit scores tend to file more claims than those with higher credit scores.
For this reason, an insurer may ask to run your credit. But insurance companies don’t use the traditional FICO score you’re probably thinking about. The proper term is “insurance score,” which is calculated similarly, but uses a slightly different formula.
Now you might be wondering if a car insurance quote is a hard or soft inquiry. Fortunately, when an insurance company runs your credit it only counts as a “soft hit” or “soft inquiry” on your credit report, meaning it does not affect your credit score in an adverse manner.
Put simply, soft inquiries aren’t seen by other creditors/lenders because they don’t involve an application for credit, so technically they won’t even know that you applied for insurance (or care).
And they don’t need to know, because ultimately, a company providing you with insurance coverage is not the same as a bank lending you money.
The traditional FICO score was created to determine the statistical odds of you defaulting on borrowed money or credit extended to you.
Therefore, it doesn’t make sense for the credit reporting agencies to lower your credit score (and deny you credit or raise your interest rate) for attempting to purchase car insurance, which is NOT a loan or credit of any kind.
So while you will be able to see that X insurance company recently ran your credit, other creditors won’t see it.
Keep in mind that most states require us to have at least a minimum car insurance policy to operate a vehicle on public roadways.
It’s the LAW and a NECESSITY to make certain that if you injure another person while driving, you have the means to pay for it.
Conversely, things like owning a car or buying a house are a choice, if not a privilege, and are thus subject to credit checks if you can’t pay with cash.
In summary, don’t be afraid to shop your insurance rate for fear of your credit score dropping. Doing so could prevent you from obtaining a much more favorable rate.