Paul Sanchez
When it comes to insurance rates, it's natural to wonder about the impact of credit checks on your financial standing. In most states, insurance companies do consider an applicant's credit score and history when calculating premiums, but it's important to distinguish between hard and soft inquiries. A hard inquiry, often triggered by lending decisions, can temporarily lower your credit score, whereas a soft inquiry, such as a background check, does not affect your score. So, does checking insurance rates pull a hard inquiry?
| Characteristics | Values |
|---|---|
| Does checking insurance rates pull a hard inquiry? | No, it is a soft inquiry and does not affect your credit score. |
| What is a hard inquiry? | When a financial institution or lender checks your credit history before making a lending decision. |
| How does it affect your credit score? | A single hard inquiry tends to have a small and temporary impact on your credit score. Multiple hard inquiries within a short time can negatively affect your credit score. |
| What is a soft inquiry? | When a person or company checks your credit history as part of a background check or for other permissible purposes. |
| How does it affect your credit score? | Soft inquiries do not affect your credit score. |
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What You'll Learn
Soft inquiries do not impact your credit score
Soft inquiries, also known as "soft pulls" or "soft credit checks", occur when an individual or company checks your credit report or credit history as part of a background check or for other permissible purposes. Soft inquiries do not impact your credit score.
Soft inquiries are not related to a specific application for new credit. They are not an indicator of greater risk and are therefore not associated with greater repayment risk. They are only visible to the individual when they view their credit report.
Soft inquiries can occur when a company, such as a credit card issuer, mortgage lender, or employer, checks your credit to pre-approve you for an offer or before hiring you. They can also occur when an individual checks their credit report themselves.
Hard inquiries, on the other hand, occur when a creditor or lender accesses your credit file to assess your creditworthiness and approve you for a credit card, loan, or line of credit. Hard inquiries may lower your credit score by a few points and are considered more risky. They are typically only counted as a single inquiry if they occur within a 14-45 day period.
While soft inquiries do not impact your credit score, it is important to be mindful of the number of inquiries on your credit report. A large number of soft inquiries may indicate greater risk, even if they do not directly affect your credit score.
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$7.99
Hard inquiries are when a lender checks your credit history
A hard inquiry, also known as a 'hard pull', occurs when a lender or financial institution checks your credit history in response to your application for credit. This could be a mortgage, loan, or credit card application. A hard inquiry will be visible to other lenders and can negatively affect your credit score, particularly if you have multiple hard inquiries over a short period of time.
When you request a quote from an insurance company, they will usually perform a soft inquiry, or 'soft pull', on your credit. This is when a person or company checks your credit history as part of a background check or for other permissible purposes. Soft inquiries do not affect your credit score and are not visible to lenders. They are recorded on your credit report so you can see who has inquired about your credit history.
Insurance companies will use soft inquiries to check your credit score and gauge the risk of insuring you. They will use this information to calculate your premium. Studies show that people with lower credit scores tend to file more claims, so they are considered higher risk. As a result, they usually pay higher premiums than those with high credit scores.
In most states, insurance companies are allowed to use credit scores to calculate premiums. However, California, Hawaii, and Massachusetts have laws preventing insurers from using credit history in this way.
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Insurance companies use soft inquiries to check credit scores
When insurance companies check your credit score, they use a ""soft inquiry" or "soft pull", which does not negatively impact your credit score. Soft inquiries are typically used when a person or company checks your credit history as part of a background check or for other permissible purposes. For example, a credit card issuer may check your credit without your permission to see if you qualify for certain credit card offers.
Soft inquiries are recorded on your credit report, so you can see who has inquired about your credit history. However, unlike a hard inquiry, a soft inquiry won't be visible to lenders and won't affect your credit score. This means that you can get multiple insurance quotes without worrying about your score being negatively impacted.
Hard inquiries, on the other hand, occur when a financial institution, such as a lender or credit card issuer, checks your credit history when making a lending decision. They commonly take place when you apply for a mortgage, loan, or credit card, and you typically have to authorize them. While a single hard inquiry tends to only have a small and temporary impact on your scores, multiple hard inquiries within a short time period can negatively affect your credit score.
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Credit scores are used to determine insurance premiums
Checking insurance rates typically involves a "soft inquiry" or "soft pull", which does not impact your credit score. Soft inquiries are recorded on your credit report, but they are not related to specific applications for new credit. They are commonly carried out by employers during the recruitment process and by credit card issuers to see if you qualify for certain credit card offers.
However, credit-based insurance scores are used by many insurers to determine insurance premiums. Credit-based insurance scores are not the same as credit scores, and they are used to predict the risk of loss. In the US, FICO estimates that 95% of auto insurers and 85% of homeowners' insurers use credit-based insurance scores in states where it is legally allowed.
Five different factors are used to determine your credit-based insurance score: payment history, outstanding debt, credit history length, pursuit of new credit, and credit mix. Payment history and outstanding debt are the most important factors, accounting for 40% and 30% of your credit-based insurance score, respectively.
In some states, credit-based insurance scores can only be used as one factor for property insurance, such as auto and homeowners insurance. In other states, they can be used with any type of insurance.
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Multiple insurance quotes will not affect your credit score
On the other hand, a "hard inquiry" can lower your credit score. Hard inquiries occur when a financial institution, such as a lender or credit card issuer, checks your credit history when making a lending decision. They commonly take place when you apply for a mortgage, loan, or credit card, and you typically have to authorize them. While a single hard inquiry tends to only have a small and temporary impact on your scores, multiple hard inquiries within a short time period can negatively affect your credit score.
Insurance companies in most states use an applicant's credit score and credit history when calculating their premium. However, getting multiple insurance quotes will not affect your credit score, so you can shop around for the best rate without worrying about your credit being impacted.
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Frequently asked questions
No, insurance companies use a "soft pull" or "soft inquiry" to check your credit score when offering a quote.
A soft inquiry is when a person or company checks your credit history as part of a background check or for other permissible purposes. Soft inquiries do not affect your credit score.
A hard inquiry occurs when a financial institution, such as a lender or credit card issuer, checks your credit history when making a lending decision. Too many hard inquiries can negatively impact your credit score.
No, some insurance companies do not use credit as a rating factor, but they are hard to find.
No, in some states like California, Hawaii, and Massachusetts, there are laws preventing insurers from using credit history to set insurance rates.
