Does Getting Auto Insurance Quotes Affect Your Credit Score?
Uncover if auto insurance quotes impact your credit score. Understand credit inquiries, how insurers use credit data, and what truly affects your rates.
When seeking auto insurance quotes, a common concern arises regarding the potential impact on one’s credit score. Obtaining auto insurance quotes does not negatively affect your credit score. This is because insurance companies primarily use a “soft inquiry,” which differs significantly from “hard inquiries” that can influence your credit standing. Understanding these distinctions helps clarify why comparing insurance rates is a safe financial practice.
Understanding Credit Inquiries
Credit inquiries are records of when your credit report has been accessed. There are two types: soft and hard, each with a different impact on your credit score.
Soft inquiries, also known as soft pulls or soft credit checks, occur when a person or company reviews your credit report for purposes other than a lending decision. Examples include checking your own credit score, pre-approved credit offers, or background checks by employers or insurance companies. These inquiries are invisible to other lenders and do not affect your credit scores. They may appear on your personal credit report for one to two years but do not factor into credit scoring models.
Conversely, hard inquiries, or hard pulls, happen when you formally apply for new credit, such as a loan, mortgage, or credit card. Lenders perform these checks to assess your creditworthiness before extending credit. A hard inquiry can temporarily lower your credit score by a few points and remains on your credit report for up to two years, though its impact usually lessens after one year. The key difference is that auto insurance companies perform soft inquiries when providing quotes, ensuring that shopping for insurance does not harm your credit score.
How Insurers Use Credit Information
While obtaining auto insurance quotes involves a soft inquiry that does not affect your credit score, insurers still access credit information to determine your rates. They use this data to create a “credit-based insurance score.” This score is not the same as your traditional FICO or VantageScore credit score, which lenders use to assess your ability to repay debt. Instead, it predicts the likelihood of an individual filing an insurance claim and the potential cost of that claim.
Insurers derive these scores from data points in your credit report, including payment history, outstanding debt, length of credit history, types of credit, and recent applications for new credit. For example, payment history accounts for about 40% of the score, and outstanding debt makes up around 30%. Studies show a correlation between certain credit behaviors and the likelihood of future insurance losses. While widely used, their application varies by state, with some jurisdictions restricting or prohibiting their use in determining insurance premiums.
Key Factors Influencing Auto Insurance Rates
Beyond credit-based insurance scores, numerous other factors significantly influence auto insurance premiums. Your driving record is a primary consideration, as accidents, traffic violations, and claims history indicate your risk level to insurers. A clean driving history leads to lower rates, while severe infractions like a DUI conviction can substantially increase premiums.
The type of vehicle you drive also plays a substantial role. Factors such as the car’s make, model, safety features, repair costs, and theft risk all contribute to the premium. High-performance or luxury vehicles often cost more to insure due to higher repair expenses and increased theft appeal.
Your geographic location, down to your specific ZIP code, influences rates due to varying crime rates, population density, traffic congestion, and local weather patterns. Other personal factors include your age and driving experience, with younger, less experienced drivers facing higher premiums. The amount you drive annually, the specific coverage limits and deductibles you select, and available discounts (such as multi-policy or good student discounts) further impact the final cost. Insurers consider the interplay of all these variables to assess risk and determine your auto insurance premium.