Does getting a car insurance quote lower my credit score?

It is common knowledge that you will have your credit checked when applying for a car loan, mortgage, or another type of credit line.

However, many consumers and drivers are a bit taken aback to learn that, in most cases, when they apply for car insurance their credit report is accessed.

Upon learning this news, many drivers wonder if obtaining car insurance quotes will be detrimental to their credit report.

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Why are insurance companies using credit scores?

With the exception of California, Massachusetts, and Hawaii, car insurance companies are legally allowed to use your credit score to help determine if they will offer you insurance.

Although the home and car insurance industries have been using credit scores in their underwriting process for over two decades, many consumers are unaware of this practice.

Insurance companies claim that a credit score and credit history is a good indicator of the risk they are assuming when insuring a driver.

This means that your car insurance company will likely quote you a higher premium if you have poor credit score.

Some car insurance companies do not follow this practice, but most do.

FICO, a credit reporting business says that about 95 percent of auto insurance do utilize credit when making underwriting decisions where they are allowed by law.

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Your Credit-Based Insurance Score

A credit-based insurance score looks at several different parts of your credit report.

These pieces are said to best determine how you will manage your credit risk.

Portions of your credit score factored into your credit-based insurance score include:

• Payment History – This portion contributes to 40 percent of your credit-based insurance score and looks at how responsible you have been at making payments in the past.
• Outstanding DebtOutstanding Debt – Given 30 percent of your score, your outstanding debt is how much you currently owe.
• Length of Credit History – This simply means how long you have had lines of credit. It is given 15 percent of the total weight of your credit-based insurance score.
• Attempts at New Credit – Ten percent of your score is based on if you have recently applied for new lines of credit.
• The Mixture of Credit – This factor is given 5 percent and takes into account the different types of credit you have such as credit cards, car loans, mortgages, student loans, and other lines of revolving credit.

What factors cannot be used?

Although it can seem unfair that insurance companies use credit scores to help determine your premium, there are several pieces of information that they are legally not allowed to use.

These factors include:

• Race
• Religion
• Gender
• Age
• Employment status or history
• Marital status
• Rental agreements
• Any child support information
• Interest rates being charged
• If the consumer is participating in a consumer credit counseling program

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How can I improve my credit-based insurance score?

It will not happen overnight, however, there are several steps that consumers can take in order to improve their credit scores, and therefore, their credit-based insurance score.

Working towards improving your credit score over time can result in better insurance premiums as well as lower interest rates and other benefits.

You can improve your credit score by:

• Paying Your Bills on Time – Every on time payment you make will help increase your credit rating over time.
• Not Seeking New Lines of Credit – Even simply applying for a new line of credit can bring your credit score down several points. Be careful with what you choose to apply for.
• Getting Current on any Delinquent Accounts – As soon as you can, get caught up on any payments that you are behind on and then stay caught up.
• Monitoring Your Credit Report on a Regular Basis – Consumers should be looking closely at their credit reports at least once per year. They should look for any wrong information and seek to dispute it as soon as possible. Having wrong information removed can potentially help raise your credit score relatively soon.
• Don’t Close Unused Accounts – Although it may be tempting to close any credit accounts you are not actively using, doing so can actually hurt your credit score.
• Keep Balances Low on Credit Cards – Incurring high balances on cards or lines of credit that you already have can decrease your credit score. Whenever possible, pay off your credit card balances each month and continue to use them.

Will a car insurance quote lower my credit score?

Many consumers worry that getting a car insurance quote will lower their credit score just as seeking new lines of credit can.

The good news is that when you get a car insurance quote, the car insurance company does what is called a soft pull.

A soft pull is only seen by you in order to show you who has accessed your credit report and personal information. A soft pull does not affect your credit score and is not used in lending decisions.

A hard pull is done when you apply for new lines of credit and can negatively impact your credit score.

While it can be discouraging to know car insurance companies will most likely use your credit score in determining if they will insure you, it is a relief when most consumers discover that this step will not impact their credit score.

If you feel that the car insurance premium you are paying is too high or you cannot afford it, try using an online insurance rate comparison tool.

These tools can provide you with several different quotes and make it easy to compare car insurance companies and premiums.

Enter your zip code in our FREE tool below to compare car insurance rates instantly!