Does an Insurance Quote Affect Your Credit Score?
Learn if getting an insurance quote affects your credit score. Discover how insurers check credit and why it won't impact your rating.
Many individuals wonder if obtaining an insurance quote might negatively affect their credit standing. This concern stems from a general understanding that financial inquiries can sometimes influence credit scores. This article aims to clarify the relationship between seeking insurance quotes and your credit score.
How Credit Information is Used by Insurers
Insurance companies, particularly those offering auto and home policies, use credit-based insurance scores to determine premiums. These scores are derived from a consumer’s credit report and are one factor in assessing risk. Insurers use these scores due to a correlation between credit history and the likelihood of filing future claims.
A credit-based insurance score differs from traditional credit scores used by lenders like FICO or VantageScore. It is a specialized score designed to predict insurance risk, not credit repayment behavior. Factors considered include payment history, outstanding debt, credit history length, and new credit pursuit. Most states allow insurers to use this information, though regulations vary on its application.
Understanding Credit Inquiries
When a company accesses your credit report, it results in a credit inquiry, categorized as hard or soft. A hard inquiry occurs when you apply for new credit, such as a mortgage, auto loan, or credit card. This inquiry indicates to other lenders that you are seeking additional debt. Hard inquiries can cause a small, temporary decrease in your credit score, usually by a few points, and remain on your credit report for up to two years.
Conversely, a soft inquiry occurs when your credit report is reviewed for purposes other than a new credit application. Examples include checking your own credit score, pre-qualifying for a loan, or background checks for employment or rental applications. Soft inquiries do not impact your credit score and are often only visible to you, not to other lenders.
Impact of Insurance Quotes on Credit Scores
When you request an insurance quote for auto or home coverage, the insurance company typically performs a soft inquiry on your credit report. This process allows them to access the necessary information to calculate your premium without affecting your credit score. Because it is a soft inquiry, it will not reduce your credit score, nor will it be visible to lenders who might be assessing your creditworthiness for a loan. This means that you can confidently shop around and obtain multiple insurance quotes from various providers without concern for damaging your credit score. While extremely rare, some specialized insurance products or situations might involve a hard inquiry, but for standard personal auto and home insurance quotes, a soft inquiry is the consistent practice.