Do Insurance Quotes Affect Your Credit Score?
Concerned about insurance quotes affecting your credit? Get clarity on how shopping for rates impacts your financial standing.
Obtaining insurance quotes often raises questions about their impact on credit scores. A credit score plays a significant role in personal finance, influencing loan approvals and interest rates. Understanding how different financial inquiries interact with your credit history is important.
How Insurance Companies Use Credit Data
Insurance companies use credit data in their underwriting process to assess risk and determine premium rates for policies like auto and home insurance. This practice stems from a correlation between credit behaviors and the likelihood of filing insurance claims. Individuals who demonstrate financial responsibility often have fewer or less costly claims.
Insurers use an “insurance score” or “credit-based insurance score,” derived from credit information but separate from a standard credit score used by lenders. These scores help predict future losses. Credit report aspects considered include payment history, outstanding debt, credit history length, new credit inquiries, and credit type diversity. Major negative items like bankruptcies or collections also factor into this assessment. The Fair Credit Reporting Act (FCRA) permits insurance companies to access this credit information for underwriting purposes.
The Impact of Insurance Quotes on Your Credit Score
Seeking insurance quotes does not negatively affect your credit score. When you request an insurance quote for policies like auto or home insurance, the provider performs a “soft inquiry” or “soft pull” on your credit report. This informational inquiry does not negatively impact your credit score.
Soft inquiries are conducted for purposes such as pre-approval offers or background checks, and they do not signal that you are seeking new credit. Shopping around for multiple insurance quotes will not harm your credit score. This allows consumers to compare rates from various providers. A soft inquiry may appear on your personal credit report, but it is not visible to lenders and has no bearing on credit scoring models.
Understanding Different Types of Credit Inquiries
It is important to distinguish between soft inquiries and hard inquiries. A soft inquiry occurs when credit information is accessed for purposes other than a new credit application. Examples include checking your own credit report, receiving pre-approved credit offers, or obtaining insurance quotes. These inquiries are visible only to you and the entity that initiated the check, and they never affect your credit score.
In contrast, a hard inquiry, or “hard pull,” occurs when a lender formally reviews your credit report for a new credit application, such as a credit card, mortgage, or auto loan. Each hard inquiry can cause a small, temporary dip in your credit score. Hard inquiries remain on your credit report for up to two years, though their impact lessens after about one year. For certain loans like mortgages or auto loans, multiple hard inquiries within 14 to 45 days may be treated as a single inquiry for scoring purposes.