Maintaining a good credit score is critical for securing low interest rates and accessing a range of financial products. Since that’s the case, knowing whether an action like requesting an insurance quote is going to impact your score is essential. If you’re about to get a new insurance quote, here’s what you need to know about its effect on your credit score.
Do Insurance Companies Use Your Credit Score for Quotes?
Insurance companies will use your credit report to help determine the rate for your premiums. While your credit score isn’t the only factor the insurers consider, it allows them to estimate the risk of extending a policy to you.
Insurers prefer to offer policies to individuals with good financial habits, as they’re more likely to pay on time. A good credit score shows a person is fiscally responsible, so an insurer views them as a lower risk when compared to someone with a poor credit history. In turn, having a good credit score can result in a lower price for your premium.
Does an Insurance Quote Hurt Your Credit?
When an insurance company checks your credit, it performs a soft pull. A soft pull is less comprehensive than a hard pull, but it gives the insurer some basic details about your credit history. With the data in a soft pull, insurers can determine whether you’re a potential financial risk, making a hard pull unnecessary.
The benefit of a soft pull over a hard pull is that soft pulls don’t impact your credit score or report. As a result, your credit score won’t change. Additionally, there isn’t any type of associated remark recorded after a soft pull, so it won’t affect your creditworthiness.
What Happens When Your Score Is Low?
Generally speaking, individuals with low credit scores – particularly those in the 300 to 579 range – are more likely to miss payments. Plus, they statistically file more claims than policyholders with higher scores.
As a result, individuals with poor credit see higher insurance quotes in many cases. The higher price for premiums compensates the insurer for taking on a more significant risk. That’s because the odds they’ll experience a financial loss relating to the policy is increased.
In some cases, an insurer may opt not to extend a policy if a credit score is low enough or other factors make the risk of issuing coverage too great. When this occurs, the insurer will state that the person isn’t eligible for a quote or policy, and it’ll usually outline why that decision was made in a basic sense. For example, the insurer may specifically reference a person’s credit score as the reason it won’t make a policy available.
When you’re gathering insurance quotes, it’s wise to review your credit report before requesting quotes. Examine it for errors, and if you find one, submit requests to the credit bureaus to have the mistake corrected.
Additionally, if you have access to your credit score through an existing credit account or another service, check it there as well. That gives you an idea of the score the insurer is likely to see, allowing you to determine if you’re likely to get a competitive policy price.
