Does Getting Car Insurance Quotes Lower Your Credit Score?

Consumers often wonder if shopping for car insurance quotes might inadvertently harm their credit score. Understanding the mechanics of credit inquiries and their specific application in the insurance industry can help alleviate these concerns.

Types of Credit Inquiries

Credit inquiries are categorized into two distinct types: soft inquiries and hard inquiries. Each type carries a different implication for a consumer’s credit report and score.

A soft inquiry, sometimes called a soft pull or soft check, occurs when a person or company checks a credit report for informational purposes. These inquiries do not require explicit permission, are not visible to other lenders, and do not influence a credit score. Examples include checking your own credit score or pre-approved credit card offers.

Conversely, a hard inquiry, also known as a hard pull or hard check, takes place when a lender reviews a credit report as part of an application for new credit, such as a mortgage, car loan, or credit card. Hard inquiries require direct permission and are visible to other lenders. While a single hard inquiry typically has a minor and temporary impact on a credit score, multiple hard inquiries in a short period can suggest a higher credit risk to lenders.

How Car Insurance Quotes Affect Your Credit Score

Obtaining car insurance quotes almost universally results in a soft inquiry on a consumer’s credit report. Soft inquiries do not lower your credit score. Insurance companies perform these checks for informational purposes, allowing them to assess risk and formulate a quote without negatively impacting your creditworthiness. Since these are soft inquiries, they are generally not visible to other lenders.

This addresses the common misconception that comparing insurance rates will harm one’s credit. Consumers can confidently shop around for the best car insurance rates without concern that each quote request will diminish their credit score. Credit scoring models differentiate between inquiries for new credit applications and those for informational purposes, like insurance quotes. Therefore, multiple insurance quotes in a short period do not negatively impact a credit score.

The Purpose of Credit Checks in Auto Insurance

Car insurance companies use credit checks primarily to assess a policyholder’s risk and determine appropriate rates. Insurers often use a “credit-based insurance score,” a proprietary score derived from credit report information, distinct from a traditional FICO score. This score helps predict the likelihood of an individual filing an insurance claim. Research indicates a correlation between certain credit behaviors and the probability of future insurance claims, leading insurers to incorporate this data into their risk assessment models.

While credit information is a factor, it is one of many elements insurers consider, alongside driving history, claims history, and vehicle type. The purpose of this check is not to evaluate credit for lending, but to inform the underwriting process for insurance coverage. This allows insurers to offer rates that align with the perceived risk of each applicant.