Hard Inquiry: What Auto Insurance Companies Really See

When applying for car insurance, people often wonder whether their credit score will be affected. The short answer is no. While car insurance companies in most states do use an applicant's credit score and credit history when calculating their premium, they use a type of inquiry called a soft pull that does not show up to lenders. This is considered a soft credit inquiry, similar to when a company checks your credit to see if you qualify for a financial product like a credit card or loan. It might appear on your credit report, but it won't impact your score.

A hard credit inquiry, on the other hand, is when you voluntarily apply for a loan, mortgage, or credit card, and a lender checks your credit history to make a lending decision. This type of inquiry can affect your credit score and will be visible to other lenders.

Soft inquiries do not change your credit score

A soft inquiry, sometimes known as a soft credit check or soft credit pull, occurs when you or someone you authorise (e.g. a potential employer) checks your credit report. They can also happen when a company, such as a credit card issuer or mortgage lender, checks your credit to pre-approve you for an offer. Soft inquiries are not attached to a specific application for credit and are therefore not an indicator of greater risk.

Soft inquiries are recorded on your credit report so that you can see who has inquired about your credit history, but they are not visible to potential lenders and will not affect your credit score. They may or may not be recorded in your credit report, depending on the credit bureau.

In contrast, hard inquiries may lower your credit score by a few points and will be visible to lenders. They occur when a financial institution, such as a lender or credit card issuer, checks your credit when making a lending decision. They commonly take place when you apply for a mortgage, loan, or credit card, and you usually have to authorise them.

Auto insurance companies will usually do a soft pull on your credit when offering a quote. This is a soft inquiry and will not affect your credit score. However, if you are applying for a loan to purchase a car, this will likely result in a hard inquiry.

Hard inquiries may change your credit score

A hard inquiry, also known as a "hard pull", occurs when a financial institution, such as a lender or credit card issuer, checks your credit history when making a lending decision. This commonly takes place when you apply for a mortgage, loan, or credit card, and you typically have to authorize it. A hard inquiry may lower your credit score by a few points, or it may have a negligible effect. In most cases, a single hard inquiry is unlikely to play a huge role in whether you're approved for new credit.

Hard inquiries may remain on your credit report for up to two years, although they typically only affect your credit score for one year. FICO only considers inquiries from the last 12 months when calculating your credit score. The damage to your credit score usually decreases or disappears before the inquiry drops off your credit report.

Multiple hard inquiries in a short period could lead lenders and credit card issuers to consider you a higher-risk customer, as it may suggest that you are short on cash or planning to take on a lot of debt. Therefore, it is recommended to spread out your credit card applications and only apply for credit every six months.

While a single hard inquiry may knock a few points off your score, multiple inquiries in a short amount of time may cause more damage. This is because lenders and credit-scoring models view multiple credit applications in a short amount of time as a sign of risk. However, there are exceptions when shopping for specific types of loans, such as car loans, student loans, or mortgages. In these cases, multiple inquiries within a certain time frame, typically 14 to 45 days, are counted as a single inquiry.

Soft pulls are used by auto insurance companies to offer quotes

A soft pull is an involuntary inquiry, and it's used when creditors send potential customers pre-approved offers. It's also used by employers when they check job applicants' credit histories. Checking your own credit score is also considered a soft pull because you aren't actively seeking credit.

A soft pull will appear on your credit report, but it won't impact your credit score, so you can shop around for multiple car insurance quotes without worrying about damaging your creditworthiness.

A hard pull or hard inquiry, on the other hand, is a voluntary credit check that you authorise when applying for credit, such as a loan, mortgage or credit card. This type of credit check will be visible to other lenders and can negatively impact your credit score, especially if there are multiple hard pulls in a short period.

Insurance companies don't use the same credit scores that lenders use to approve mortgages or auto loans. Instead, they use industry-specific insurance scores calculated from information on your credit reports. These include your payment history, the amount of debt you have, the length of your credit history, whether you've recently applied for new lines of credit, and the kinds of credit you have.

While your credit score is an important factor in determining your insurance premium, it's not the only one. Insurance companies also consider your driving record, where you live, your age, sex, marital status, the type of vehicle you drive, and the types of insurance you need.

Hard pulls generally occur when a financial institution makes a lending decision

A hard credit inquiry, also known as a "hard pull" or a "hard credit check", occurs when a financial institution, such as a lender or credit card issuer, checks your credit when making a lending decision. This type of inquiry may lower your credit score by a few points, but it usually has a negligible effect on your score and lending approval. A hard inquiry is typically triggered when you apply for a mortgage, loan, or credit card, and you usually have to authorise it.

Hard inquiries are generally associated with applications for new credit, such as loans or credit cards, and they offer lenders a thorough view of your credit history and payment habits. They are used to assess your creditworthiness and help creditors decide whether to extend new credit to you or give you additional credit.

When a hard pull is conducted, the entity gains access to a comprehensive view of your credit profile, including personal details, credit history, credit scores, recent inquiries, and any public records, such as bankruptcy. While a single hard inquiry may not significantly impact your creditworthiness, multiple hard inquiries within a short time frame can affect your score and indicate to lenders that you are a higher-risk borrower.

In contrast, a soft inquiry, also known as a "soft pull", occurs when your credit history is checked as part of a background check or for other permissible purposes. Soft inquiries are typically performed when a credit card issuer checks your credit without your permission to see if you qualify for certain credit card offers, or when an employer runs a background check before hiring you. Soft inquiries do not impact your credit score and are only visible to you on your credit report.

Credit-based insurance scores are used to evaluate a customer's risk

Credit-based insurance scores are used by auto insurance companies to evaluate a customer's risk. These scores are based on a consumer's credit information and history and are used to predict the likelihood of insurance claims being made in the future. The scores are calculated using mathematical models built by FICO, which take into account factors such as payment history, credit card balances, credit limits, and the age of credit accounts.

Credit-based insurance scores are used by insurers to assign consumers to risk pools and then adjust premiums accordingly. These scores help insurers evaluate the risk of insurance applicants and policyholders, ensuring that each person pays a rate that corresponds to the risk of loss they represent. In other words, those who are less likely to have claims that result in losses for the insurance company will pay lower premiums, while those with a higher risk of claims will pay higher premiums.

It is important to note that credit-based insurance scores are not used in isolation to set pricing or deny insurance coverage. Instead, they are typically one of many factors considered in an insurer's underwriting evaluation, alongside factors such as motor vehicle reports, claims history, and home inspections. Additionally, state laws generally prohibit insurance companies from solely relying on credit-based insurance scores to deny applications, set rates, or make renewal decisions.

While credit-based insurance scores are designed to bring consistency, fairness, and efficiency to the underwriting process, there are concerns about their impact on minority and low-income groups. Consumer groups argue that many individuals do not understand how credit-based insurance scoring works and how it affects their insurance purchases. Furthermore, some allege that the use of these scores disproportionately affects certain minority and low-income groups.

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