I was recently asked this question by one of our clients, and thought I would share the answer here for our readers.
There are a lot of things that go into homeowners and auto insurance rates, one of them being credit. I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit in their underwriting.
Some people have absolutely no idea that it’s used in the rate at all.
At the end of the day, there’s not much we can do about it though. Insurance companies have been using credit in their rates for decades, and that’s not likely to change.
By the way, insurance companies don’t pull your credit like a mortgage company or credit card company does. There is no negative impact on your credit as a result of an insurance company looking at it.
When I say “pull” what I mean is that the insurance company is doing what’s called a soft inquiry, which is not the same thing as having your credit pulled (hard inquiry).
When does credit play a role in insurance rates?
It’s important to understand that insurance companies don’t continuously check or monitor your credit. Usually, they only check it when you first get a quote and/or sign up with them in the very beginning.
This means that if your credit score increases (or decreases) your insurance company does not automatically know about it.
So, to my customers question of whether or not his increased credit score will lower his rates, the answer is not automatically.
What has to be done on our side as the agent is contact the carrier the insurance and ask them to do what’s commonly referred to as a “re-score”. This is when the insurance company can re-run the person’s credit (soft inquiry) to see if there is any positive bearing on the rate.
This isn’t something that the insurance company is going to let the agency do every single year, so it’s not worth even asking unless there has been a significant change in your credit score, and only you as the customer would know if that was the case.
Your credit rating is one of many factors that determine your insurance rates – with most insurance companies. There are some companies that do not.
Do insurance quotes affect my credit score?
While insurance companies do check your credit score to help determine your rates, they only do a ‘soft pull,’ which is a type of inquiry that will not affect your credit score.
Does paying your insurance help build your credit score?
Paying your insurance premium does not help build your credit history. Since insurance companies bill you in advance of providing any coverage, they do not report any positive – or negative – information to the credit bureaus.
What is an insurance score?
An insurance score is computed by insurance companies, and it is based on an individual’s credit rating. It will affect the premium they pay for insurance coverage.
What is a good insurance score?
Each insurance company calculates their insurance scores differently. Some rate them alphabetically, and others list them as similar to a credit score. If it’s a number system, a higher insurance score is typically better.