As a general rule of thumb, most of all insurance companies will always use an applicant’s credit score and credit history as aspects in calculating their premium. From this fact, some people may have almost the same question, does auto insurance quotes affect your credit score? The short answer is no.
If you need a detailed explanation of the question does auto insurance quotes affect your credit score, keep reading this article. Below, we will feature the answer to this question. Thus, keep reading!
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Does Auto Insurance Quotes Affect Your Credit Score?
As answered earlier, insurance quotes do not affect credit scores at all. Generally speaking, most insurance companies will only use your credit score information to determine how much auto insurance premium you have to pay each month.
In addition, most insurance companies also use a type of question called a soft pull. What is a soft pull? It is an inquiry that an insurance company will ask you to check your credit score. In conclusion, auto insurance quotes do not affect your credit score.
Reasons Why Insurance Companies Check Credit Scores
Obviously, the reason why insurance companies check your credit score is to determine the premium you have to pay when buying auto insurance. Checking your credit score also aims to measure the risk that an insurance company must take when providing auto insurance to you.
Generally, people with a low credit score have a history of filing more claims, making them considered a higher risk. Those with a high credit score usually have lower claim filings. That said, people with low credit scores usually have to pay higher premiums than those with high credit scores.
What is a Car Insurance Score?
In general, a car insurance score is defined as a rating that insurance companies used to predict how risky a person has in filing a claim. However, insurance companies will use credit reports to determine this risk.
In most cases, once you apply for auto insurance coverage, it means that you have authorized the insurance company to check your credit information. With this, the insurance company will get valid information in calculating your auto insurance premium.
In addition, most insurance companies will consider the following factors in determining your auto insurance score.
- How recently you applied for credit
- On-time payment history
- The amount of your credit card limit
- How many loans do you have
- Debt
- Foreclosure and bankruptcy
Credit Score: What is it?
We’ve been talking about credit scores for a while now. But what is the actual definition of a credit score? Well, a credit score, in general, is a three-digit number that indicates the probability that you are going to pay your bills and do so on time.
Additionally, some credit bureau companies calculate your credit score on the basis of your credit report, including:
- Payment history
- Debt
- Length of credit history
Credit scores are also generally divided into several tiers with values from 300 to 850. Here are the details:
- Excellent: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
So, how much is your credit score? If your credit score is a poor or fair tier, you might try to increase it to a higher tier so that you can afford a cheaper auto insurance premium.
Types of Credit Inquiries
When you get auto insurance, the insurance company will conduct a credit check process which is divided into two processes, soft pull, and hard pull. What is the difference between the two? Let’s find out together.
1. Soft Pull
Soft Pull, also known as involuntary inquiry, is a checking process that will verify some of your basic credit information. This process is done to get a suitable offer. In addition, a soft pull will not affect your credit score at all as it only takes some basic credit information.
2. Hard Pull
Unlike the soft pull, the hard pull process may affect your credit score. This is a credit check process that you do voluntarily to get the credit you need. A hard pull will generally show you actively spending in order to get credit. This is the reason why hard pulls can affect your credit score.
Does Credit Score Affect Auto Insurance Premiums?
Let’s flip the question: “Does auto insurance quotes affect your credit score” to “Does credit score affect the auto insurance premium?” The answer to this question is yes. The high or low of your credit score can affect the auto insurance premium you need to settle for.
In some cases, the insurers will use your credit score and your credit history in deciding the premium. That being said, it is important for you to keep your credit score high. Why? Because the higher your credit score, the lower the premium you need to pay.
On the contrary, the lower your credit score, the higher the auto insurance premium you have to quote on a monthly basis. Given this fact, maintaining a good credit score is absolutely essential. With that, you can save money when paying your auto insurance rates.
However, even though credit score has a significant influence on your premium, there are still several other factors that insurance companies usually consider in determining your premium rate. These factors are important because they hold significant factors that allow you to pay premiums affordably. Here are the factors:
- Where you live
- Age
- Gender
- Marital status, and
- The type of car you drive
So, Does Auto Insurance Quotes Affect Your Credit Score?
From the discussion above, you already know the answer. That’s right. Auto insurance quotes will not affect your credit score. On the contrary, credit score has a significant impact on the auto insurance rates that you have to pay.
In a nutshell, having a bad credit score can actually make your auto insurance premiums go up more. For this reason, it is essential for you to keep your credit history good as it can help lower the premium rates you need to settle for. Thus, be careful in taking installments and keep your credit score in a good position.