Does Shopping for Insurance Affect Your Credit Score?
Discover if getting insurance quotes impacts your credit score. Learn how insurers use credit data without affecting your rating.
Many consumers wonder whether shopping for insurance might negatively impact their credit score. This concern stems from the general understanding that financial activities often involve credit checks. This article clarifies how insurance companies use credit information and the specific impact that seeking insurance quotes has on your financial standing.
How Insurance Companies Use Credit Information
Insurance companies frequently access credit information to help determine policy rates, utilizing “credit-based insurance scores.” These scores are distinct from standard credit scores, such as FICO or VantageScore, that lenders use for loans or credit cards. Credit-based insurance scores are derived from elements within a consumer’s credit report and are designed to predict the likelihood of an individual filing an insurance claim.
In most states, insurers use these specialized scores as one factor among many to assess risk and calculate premiums. The factors influencing a credit-based insurance score commonly include payment history, outstanding debt amounts, the length of credit history, recent applications for new credit, and the mix of credit types. While a strong credit history can lead to a more favorable credit-based insurance score and potentially lower premiums, it is not the sole determinant of insurance costs. Other factors, such as driving history for auto insurance or property characteristics for home insurance, are also considered.
Soft vs. Hard Credit Inquiries
When a company checks a consumer’s credit, it performs either a soft inquiry or a hard inquiry. A soft inquiry, sometimes called a soft pull, typically occurs when a person checks their own credit report, or when a company offering pre-approved credit reviews a credit file. These inquiries are not visible to other lenders and do not affect a credit score.
A hard inquiry, also known as a hard pull, happens when a consumer formally applies for a new line of credit, such as a mortgage, auto loan, or credit card. This type of inquiry indicates that a consumer is actively seeking new credit. Hard inquiries can cause a small, temporary reduction in a credit score. They typically remain on a credit report for up to two years, though their impact on the score usually diminishes after a few months.
The Impact of Insurance Quotes on Credit Scores
When consumers shop for insurance and obtain quotes, the inquiries made by insurance companies are soft inquiries. This means that requesting car, home, or other types of insurance quotes will not negatively impact a consumer’s credit score. Insurance providers use these soft checks to generate a credit-based insurance score, which helps them tailor an accurate premium estimate.
Because these inquiries are soft pulls, they are not visible to other lenders and do not affect the consumer’s credit score. This allows individuals to confidently compare rates from various insurance providers without concern for damaging their credit standing. Shopping around for insurance ensures consumers can find the most competitive rates available for their specific coverage needs.